SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to __________
Commission File Number: 0-17272
TECHNE CORPORATION
(Exact name of Registrant as specified in its charter)
Minnesota 41-1427402
(State of Incorporation) (IRS Employer
Identification No.)
614 McKinley Place N.E., Minneapolis, MN 55413
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (612) 379-8854
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value.
Indicate by check mark whether the Company (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: Yes (X) No ( ).
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of the Common Stock held by non-affiliates of
the Registrant, based upon the closing sale price on September 15, 1997 as
reported on The Nasdaq Stock Market was approximately $154,608,000. Shares
of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded.
Shares of $.01 par value Common Stock outstanding at September 15, 1997:
9,427,728
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for its 1997 Annual Meeting of
Shareholders are incorporated by reference into Part III.
<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
Techne Corporation (the "Company") is a holding company which has two
wholly-owned operating subsidiaries: Research and Diagnostic Systems, Inc.
(R&D Systems) located in Minneapolis, Minnesota and R&D Systems Europe Ltd.
(R&D Europe) located in Abingdon, England. R&D Systems is a specialty
manufacturer of biological products. Its two major product lines are
hematology controls, which are used in hospital and clinical laboratories
to check the accuracy of blood analysis instruments, and biotechnology
products including purified proteins called cytokines which are sold
exclusively to the research market, and assay kits which are sold to the
research and clinical diagnostic markets. R&D Europe distributes R&D
Systems' biotechnology products in Europe. In fiscal 1996 R&D Europe
opened a sales subsidiary, R&D Systems GmbH (R&D GmbH), in Germany. The
Company also has a foreign sales corporation, Techne Export Inc.
R&D Systems was founded and incorporated in 1976 in Minneapolis, Minnesota
and was acquired by the Company in 1985. In 1977 R&D Systems introduced
its first product, a Platelet-Rich-Plasma control. In 1981 R&D Systems was
the second manufacturer in the world to release a Whole Blood Control with
Platelets, thereby establishing itself as one of the leaders in the field
of hematology control products manufacturing. Subsequently, R&D Systems
has developed several types of hematology controls designed to keep pace
with the technology of the newest models of hematology instruments. These
products are sold throughout the United States directly by R&D Systems and
in many foreign countries through distributors.
In 1985 R&D Systems entered the cytokine market. Cytokines are specialized
protein molecules that stimulate or suppress cell growth in the body.
Cytokines are in demand by biomedical researchers who want to learn more
about their diverse functions. Encouraged by its success in the cytokine
market, R&D Systems formed a biotechnology division in 1986 with the goal
of producing and marketing a wide range of human cytokines through genetic
engineering. Recombinant DNA technology offers several advantages over
extraction of these proteins from natural sources, including lower
production cost and potentially unlimited supply.
On August 19, 1991, R&D Systems purchased from Amgen Inc., a leader in the
biotechnology field, its research reagent and diagnostic assay kit
business. With this purchase, R&D Systems obtained Amgen's Erythropoietin
(EPO) kit, the Company's first cytokine enzyme-linked immunosorbent assay
(ELISA) kit cleared by the FDA for clinical diagnostic use. This
acquisition established R&D Systems as a leader in cytokine diagnostic
assays.
In July 1993, the Company acquired its European biotechnology distributor,
British Bio-technology Products Ltd. (BBP) from British Bio-technology
Group plc. BBP, which the Company renamed R&D Systems Europe Ltd.,
distributed biotechnology products for R&D Systems and several other
companies and developed and manufactured its own line of biotechnology
products. In fiscal 1997, the Company restructured the operations of R&D
Europe to concentrate on the distribution of biotechnology products
developed by R&D Systems. The restructuring involved the withdrawal from
the molecular biology market, the transfer of all major marketing and
advertising activities to R&D Systems and the transfer of immunoassay kit
development and manufacturing activities from R&D Europe to R&D Systems.
THE MARKET
The Company, through its two operating subsidiaries, manufactures and sells
products for the clinical diagnostics market (hematology controls and
calibrators) and the biotechnology research and clinical diagnostics market
(cytokines, assays and related products). In fiscal 1997, R&D Systems'
Hematology Division revenues accounted for approximately 17% of consolidated
revenues of $60,923,750. Revenues from R&D Systems' Biotechnology Division
and R&D Europe were 52% and 31% of consolidated revenues, respectively.
Biotechnology Products
R&D Systems is a supplier of cytokines to the biotechnology research
community. These valuable proteins exist in minute amounts in different
types of cells and can be extracted from these cells or made through
genetic engineering. In 1985, R&D Systems introduced its first cytokine and
is continuously adding others to its product line. The first cytokines
were extracted from natural sources (human and porcine platelets and bovine
brain). Currently the majority of cytokines are produced through recombinant
DNA techniques. R&D Systems also sells antibodies for specific cytokines,
cytokine assay kits, clinical diagnostic kits and kits for cytokine receptor
binding studies.
The growing interest by researchers in cytokines exists because of the
profound effect a tiny amount of a cytokine can have on the cells and
tissues of the body. Cytokines are intercellular messengers. They carry
vital signals to the cell's genetic machinery that can trigger it to grow
or stop growing. Cytokines can also signal a cell to differentiate, that
is, to acquire the features necessary for it to take on more specialized
tasks. Cytokines act as signals by interacting with specific receptors on
the effected cells. Certain cytokines play a key role in stimulating cells
surrounding a wound to grow and divide and also in attracting migratory
cells to the site.
R&D Systems' Biotechnology Division was formed in response to a shift in
the market from proteins purified from natural source materials to those
produced by recombinant DNA techniques. R&D Systems believes that its
recombinant cytokines are addressing the growing demand for these products
within the scientific research community.
During fiscal 1990, the Biotechnology Division released its first cytokine
assay kits under the tradename Quantikine. These kits are used by
researchers to quantify the level of a specific cytokine in a sample of
human blood or other fluid. In fiscal 1996, the Biotechnology Division
expanded its Quantikine line by introducing a line of murine assay kits.
These kits are used by research scientists doing cytokine studies using
animal models.
The Biotechnology Division of R&D Systems also has a line of flow cytometry
reagent kits sold under the tradename Fluorokine. These kits contain
cytokines which are chemically tagged causing them to fluoresce when
exposed to a laser beam. These tagged cytokines are used to measure the
presence or absence of receptors for specific cytokines on the surface of
particular cells. The combination of the Fluorokine and Quantikine product
lines enable researchers to not only quantitate cytokines, but to better
understand their interactions with cells and the function of these
cytokines.
Current Biotechnology Products
Cytokines and Related Antibodies. Cytokines are extracted from natural
sources (human and animal platelets and bovine brains) or are produced
through genetic engineering (recombinant DNA technology). Antibodies
are produced by injecting cytokines into animals (primarily goats, mice
and rabbits). The animals' immune systems recognize the cytokines as
foreign and develop antibodies to specific cytokines. These polyclonal
and monoclonal antibodies are then extracted from the animals' blood and
purified.
Assay Kits. This product line includes R&D Systems' human and murine
Quantikine kits which allow research scientists to quantify the amount
of specific cytokines in a sample of blood or tissue. Also included in
this product line are adhesion molecule assay kits developed by R&D
Europe. These kits are used by research scientists to measure cellular
adhesion molecules in serum, plasma, or cell culture media. Cellular
molecules facilitate the movement of infection fighting cells out of the
blood stream to the site of infections.
Clinical Diagnostic Kits. The EPO kit, acquired from Amgen Inc. in
fiscal 1992, was the first diagnostic assay for which R&D Systems had
FDA marketing clearance. In fiscal 1997, R&D Systems received FDA
marketing clearance for a second diagnostic assay, its transferrin
receptor (Tfr) kit.
Flow Cytometry Products. This product line includes R&D Systems'
Fluorokine kits which are used to measure the presence or absence of
receptors for specific cytokines on the surface of cells.
DNA and Related Products. Designer genes and designer probes are
synthetic DNAs used in the study of gene function.
Hematology Controls and Calibrators
Hematology controls and calibrators, manufactured and marketed through the
Hematology Division of R&D Systems, are products made up of the various
cellular components of blood. Proper diagnosis of many illnesses requires
a thorough and accurate analysis of the patient's blood cells, which is
usually done with automatic or semiautomatic hematology instruments.
Controls and calibrators ensure that these instruments are performing
accurately and reliably.
Blood is composed of plasma, the fluid portion of which is mainly water,
and blood cells, which are suspended in the plasma. There are three basic
types of blood cells: red cells, white cells and platelets. About 95
percent of the blood cells are red cells. Their main job is to transport
oxygen from the lungs throughout the body, which they do by being rich in
hemoglobin. White cells defend the body against foreign invaders.
Platelets serve as a "plug" to blood flow at the site of an injury by
sticking together and to the damaged tissue.
The formed elements of blood--red cells, white cells and platelets--differ
a great deal in size and concentration. The white cells are the largest in
size and platelets the smallest. The red cells are the most numerous. The
average adult has from 20 to 30 trillion red cells. For every thousand red
cells there are approximately one white cell and about 20 platelets. As
noted above, hematology controls are used in automatic and semiautomatic
cell counting analyzers to make sure these instruments are counting blood
cells accurately. The most frequently performed laboratory test on a blood
sample is called a complete blood count, or CBC for short. Doctors use
this test in disease screening and diagnosis. More than a billion of these
tests are done every year, the great majority with cell counting instruments.
In most laboratories the CBC consists of the white cell count, the red cell
count, the hemoglobin reading, and the hematocrit reading or the percent of
red cells in a volume of whole blood after it has been centrifuged. Also
included in a CBC test is the differential which numbers and classifies the
different types of white cells.
These and other characteristics or "parameters" of a blood sample can be
measured by automatic or semiautomatic cell counters. Cell counters can
read the parameters of blood either by impedance, in which a cell interrupts
an electrical current and is counted, or by a laser, in which a cell
interrupts a laser beam and is counted. The number of parameters measurable
in a blood control product depends on the type and sophistication of the
instrument for which the control is designed. Ordinarily, a hematology
control is used once to several times a day to make sure the instrument is
reading accurately. Some instruments need to be calibrated periodically.
Hematology calibrators are similar to controls but go through additional
processing and testing to ensure that the calibration values assigned are
extremely accurate and can be used to adjust the instrument.
The Hematology Division of R&D Systems offers a complete line of hematology
controls and calibrators for both impedance and laser type cell counters.
R&D Systems believes its products have improved stability and versatility
and a longer shelf life than most of those of its competitors. The
Hematology Division supplies hematology control products for use as
proficiency testing materials by the College of American Pathologists and
the laboratory certifying authorities of a number of states and countries.
All products are priced competitively and come with an unconditional money
back guarantee. R&D Systems recognizes that developing technologies for
cell counting instruments will require increasingly sophisticated and high-
quality controls and is prepared to meet this challenge.
Current Retail Hematology Products
Impedance-Type Whole Blood Controls/Calibrators. The Hematology
Division of R&D Systems currently produces controls and calibrators for
the following impedance-type instruments: Coulter, Sysmex, Hycel,
Danam, Roche and Cell-Dyn series instruments.
Laser-Type Whole Blood Controls/Calibrators. Currently produced
controls and calibrators for laser-type instruments include products for
the following: Technicon H series instruments, Cell-Dyn 3000 and 3500
instruments and the TOA Sysmex NE-8000 and NE-5500 instruments.
Linearity Control. This product provides a means of assessing the
linearity of hematology analyzers for white blood cells, red blood
cells, hemoglobin and platelets.
Whole Blood Reticulocyte Control. This control is designed for manual
and automated counting of reticulocytes (immature red blood cells).
Whole Blood Flow Cytometry Control. This product, released in early
fiscal 1997, is a control for flow cytometry instruments. These
instruments are used to identify and quantify white blood cells by their
surface antigens.
Multi-Purpose Platelet Reference Control. This product, Platelet-Trol
II, is designed for use by automatic and semi-automatic impedance and
laser instruments and is the successor to Platelet-Rich-Plasma which R&D
Systems introduced in 1977.
PRODUCTS UNDER DEVELOPMENT
R&D Systems is engaged in ongoing research and development in all of its
major product lines: hematology controls and calibrators, biotechnology
cytokines, antibodies, assays and related products. The Company believes
that its future success depends, to a large extent, on the ability to keep
pace with changing technologies and markets. At the same time, the Company
continues to examine its production processes to ensure high quality and
maximum economy.
R&D Systems' Biotechnology Division is planning to release new cytokines,
antibodies and cytokine assay kits in the coming year. All of these
products will be for research purposes only and therefore do not require
FDA clearance. R&D Systems' Hematology Division has developed several new
control products in fiscal 1997 including an erythrocyte sedimentation
control and controls for the newly released Abbott Cell-Dyn 4000
instrument. R&D Systems is currently developing controls for the Coulter
STKS hematology instrument and is continuously working on product
improvements and enhancements.
There is no assurance that any of the products in the research and
development phase can be developed, or, if developed, can be successfully
introduced into the marketplace.
Expenditures for research and development activities were $11,701,822,
$10,413,264 and $8,604,398 for fiscal years 1997, 1996 and 1995,
respectively.
BUSINESS RELATIONSHIPS
The Biotechnology Division has an ongoing relationship with Amgen Inc.
since the acquisition of its research reagent and diagnostic kit business
in August 1991. The purchase agreement required payment of royalties to
Amgen Inc. on certain product sales through August 1996. Royalties of
$213,648 were paid to Amgen in fiscal 1997 under the agreement.
In fiscal 1994, R&D Europe entered into a four year Joint Biological
Research Agreement with its former parent, British Bio-technology Group,
plc. Under the agreement, R&D Europe receives the exclusive right to
develop, manufacture, market and sell biomolecules developed by British Bio-
technology Group, plc. or its subsidiaries and any resulting diagnostic
kits in the research reagent and diagnostic markets. R&D Europe paid $5
million over the term of the agreement and will pay royalties for a period
of 14 years on sales of all products licensed under the agreement.
Research payments made to British Bio-technology Group, plc. in fiscal 1997
were $1.4 million. In June 1997, the Joint Biological Research Agreement
was extended an additional five years for 100,000 British Pounds per year
(approximately $165,000).
In fiscal 1995, R&D Systems entered into a License and Supply Agreement
with Cistron Biotechnology, Inc. The agreement grants R&D Systems a
sublicense to sell recombinant interleukin-1 beta protein and interleukin-1
beta precursor assays made by Cistron to the research market worldwide.
The $1,000,000 payment made for the sublicense is being amortized over five
years. R&D and Cistron also signed a Research and Development Agreement
under which R&D Systems will support Cistron's development of an
interleukin-1 beta assay kit for the detection and monitoring of
periodontal disease in humans, in exchange for co-exclusive marketing
rights to such product. Payments under the research agreement will be made
in quarterly installments of $100,000 through December 31, 1997.
Original Equipment Manufacturers (OEM) agreements represent the largest
market for hematology controls and calibrators made by R&D Systems. In
fiscal year 1997, OEM contracts accounted for $4,738,975 or 46% of Hematology
Division revenues and 8% of total consolidated revenues.
GOVERNMENT REGULATION
All manufacturers of hematology controls and calibrators are regulated
under the Federal Food, Drug and Cosmetic Act, as amended. All of R&D
Systems' hematology control products are classified as "In Vitro Diagnostic
Products" by the US Food and Drug Administration. The entire hematology
control manufacturing process, from receipt of raw materials to the
monitoring of control products through their expiration date, is strictly
regulated and documented. FDA inspectors make periodic site inspections of
the Hematology Division's control operations and facilities. Hematology
control manufacturing must comply with Good Manufacturing Practices (GMP)
as set forth in the FDA's regulations governing medical devices. R&D
Systems has not experienced any difficulty in complying with GMP
requirements. Two of R&D Systems' immunoassay kits, EPO and Tfr, have FDA
clearance to be sold for clinical diagnostic use. R&D Systems must comply
with GMP for the manufacture of these kits.
Biotechnology products manufactured in the United States and sold for use
in the research market do not require FDA clearance. Similarly, biotechnology
products manufactured and sold for use in the research market are under no
government regulation in England.
Some of R&D Systems' research groups use small amounts of radioactive
materials in the form of radioisotopes in their product development
activities. Thus, R&D Systems is subject to regulation by the US Nuclear
Regulatory Commission and has been granted a NRC License due to expire
September 30, 1997. The license is renewable annually. R&D Systems is
also subject to regulation and inspection by the Department of Health of
the State of Minnesota for its use of radioactive materials. It has been
granted a certificate of registration, which is renewable annually, by the
Minnesota Department of Health. The current certificate expires April 1,
1998. R&D Systems has had no difficulties in renewing these licenses in
prior years and has no reason to believe they wouldn't be renewed in the
future. If, however, the licenses were not renewed, it would have minimal
effect on R&D Systems' business since there are other technologies the
research groups could use to replace radioisotopes.
AVAILABILITY OF RAW MATERIALS
The primary raw material for the hematology controls and some cytokine
products is whole blood. Human blood is purchased from commercial blood
banks and porcine and bovine blood is purchased from nearby meat processing
plants. After raw blood is received, it is separated into its components,
processed and stabilized. Although the cost of human blood has increased
owing largely to the requirement that it be tested for HIV ("AIDS")
antibodies and hepatitis, R&D Systems does not anticipate that the higher
cost of these materials will have a seriously adverse effect on its
business. R&D Systems does not perform its own testing for the AIDS
antibodies as all human blood purchased is tested by the supplier. R&D
Systems' Biotechnology Division develops and manufactures the majority of
its cytokines from synthetic genes developed in-house, thus significantly
reducing its reliance on outside sources. R&D Systems typically has
several outside sources for all critical raw materials necessary for the
manufacture of products.
PATENTS AND TRADEMARKS
R&D Systems owns patent protection for certain hematology controls and has
received patent protection for its cytokine TGF-beta 1.2. R&D Systems may
seek patent protection for new or existing products it manufactures. No
assurance can be given that any such patent protection will be obtained.
No assurance can be given that R&D Systems' products do not infringe upon
patents or proprietary rights owned or claimed by others, particularly for
genetically engineered products. Although, with the exception of products
subject to current licensing agreements, R&D Systems has not been notified
that its products infringe upon proprietary rights held by others, it has
not conducted a patent infringement study.
R&D Systems has a number of licensing agreements with patent holders under
which it has the non-exclusive right to patented technology or the non-
exclusive right to manufacture and sell certain patented cytokine and
cytokine related products to the research market. For fiscal 1997, total
royalties paid under these licenses were $1,177,000.
R&D Systems has obtained federal trademark registration for its hematology
control trademark CBC-3D, CBC-7, CBC-8, CBC-Laser, PLATELET-TROL and
StatusFlow and claims common law rights in the trademarks CBC-CAL PLUS, CBC-
CAL KIT, CBC-TECH, TECH-CAL, CBC-3K, 3K-CAL and CBC-NE. R&D Systems has
also obtained the Quantikine, Fluorokine, Surfacemark and IVD trademarks.
SEASONALITY OF BUSINESS
Sales of the products manufactured by R&D Systems and R&D Europe are not
seasonal, although R&D Europe historically experiences a slowing of sales
during the summer months.
SIGNIFICANT CUSTOMERS
No single customer accounted for more than 10% of total revenues during
fiscal years 1997, 1996 and 1995.
BACKLOG
There was no significant backlog for the Company's products as of the date
of this report or as of a comparable date for fiscal 1996.
COMPETITION
The market for cytokines and research diagnostic assay kits in the United
States and Europe is being supplied by a number of biotechnology companies,
including Genzyme, PerSeptive Biosystems Inc., BioSource International,
Endogen, Sigma Chemical Co., Amersham Pharmacia and CN Biosciences. R&D
Systems believes that it is a leading worldwide supplier of cytokine
related products in the research marketplace. R&D Systems believes that
the expanding line of its products, their recognized quality and
competitive pricing, and the growing demand for these rare and versatile
proteins, antibodies and assay kits, will allow the Company to remain a
leader in the growing biotechnology research and diagnostic market.
Competition is intense in the hematology control business. The first
control products were developed in response to the rapid advances in
electronic instrumentation used in hospital and clinical laboratories for
blood cell counting. Most of the instrument manufacturing companies made
controls for use in their own instruments. With rapid expansion of the
instrument market, however, a need for more versatile controls enabled non-
instrument manufacturers to gain a foothold. Today the market is comprised
of manufacturers of laboratory reagents, chemicals and coagulation products
and independent control manufacturers in addition to instrument manufacturers.
The principal hematology control competitors of R&D Systems' retail products
are Coulter Diagnostics, Inc., Baxter Healthcare Corp., Streck Laboratories,
Abbott Diagnostics and Hematronix, Inc. R&D Systems believes it is the third
largest supplier of hematology controls in the marketplace behind Coulter
Diagnostics and Streck Laboratories.
EMPLOYEES
R&D Systems had 282 full-time and 33 part-time employees as of June 30,
1997. R&D Europe had 44 full-time employees as of June 30, 1997, including
6 at R&D Euope's sales subsidiary in Germany.
ENVIRONMENT
Compliance with federal, state and local environmental protection laws in
the United States and England had no material effect on R&D Systems or R&D
Europe in fiscal year 1997.
FOREIGN AND DOMESTIC OPERATIONS
The following table represents certain financial information relating to
foreign and domestic operations (all amounts are in thousands of US dollars):
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
---------------------------
Net Sales to Unaffiliated Customers 1997 1996 1995
- ----------------------------------- ------- ------- -------
<S> <C> <C> <C>
R&D Systems
US $34,682 $30,997 $27,794
Asia 3,185 2,807 1,885
Europe 2,542 3,009 3,243
Canada 1,001 935 667
Other 599 482 251
R&D Europe:
England 6,108 5,413 4,849
Germany 3,941 3,507 3,034
France 2,402 2,133 1,716
Other Europe 5,109 4,301 3,199
Other 1,355 1,005 1,078
Gross Margin
- ------------
R&D Systems (US) 31,907 27,207 22,658
R&D Europe (England) 9,176 8,066 6,595
R&D GmbH (Germany) 746 317 -
Net Earnings (Loss)
- -------------------
Parent and R&D Systems (US) 10,107 8,081 6,228
R&D Europe (England) 896 892 478
R&D GmbH (Germany) (121) (335) -
Identifiable Assets
- -------------------
Parent and R&D Systems (US) 46,760 38,382 29,151
R&D Europe (England) 6,547 5,387 4,911
R&D GmbH (Germany) 615 624 -
</TABLE>
CAUTIONARY STATEMENTS
The Company wishes to caution investors that the following important
factors, among others, in some cases have affected and in the future could
affect the Company's actual results of operations and cause such results to
differ materially from those anticipated in forward-looking statements made
in this document and elsewhere by or on behalf of the Company:
Risk of Technological Obsolescence and Competition
The biotechnology industry is subject to rapid and significant
technological change. Competitors of the Company in the United States and
abroad are numerous and include, among others, specialized biotechnology
firms, major pharmaceutical companies, universities and other research
institutions. There can be no assurance that the Company's competitors
will not succeed in developing technologies and products that are more
effective than any which have been or are being developed by the Company or
that would render the Company's technologies and products obsolete or
noncompetitive. Many of these competitors have substantially greater
resources and product development, production and marketing capabilities
than the Company. In addition, many of the Company's competitors have
significantly greater experience than the Company in undertaking
preclinical testing and clinical trials of new or improved diagnostic kits
and obtaining Food and Drug Administration (FDA) and other regulatory
approvals of such products. If the Company is successful in commencing
significant commercial sales of its products, it also will be competing
with respect to manufacturing efficiency and marketing capability.
Furthermore, the Company's competitors may obtain FDA approval for products
sooner and be more successful in manufacturing and marketing their products
than the Company.
Patents and Proprietary Rights
The Company's success will depend, in part, on its ability to obtain
licenses and patents, maintain trade secret protection and operate without
infringing the proprietary rights of others. The Company has filed a very
limited number of United States and foreign patent applications for
products in which it believes it has a proprietary interest. The Company
has obtained licenses to produce a number of cytokines and related products
claimed to be owned by others. The Company believes that no patent rights
exist as to other cytokines which it produces, but it has not conducted a
patent infringement study. It is possible that the Company may
unintentionally infringe patents of third parties or that the Company may
have to alter its products or processes, pay licensing fees or cease
certain activities because of patent rights of third parties, thereby
causing additional unexpected costs and delays which may have a material
adverse effect on the Company. The patenting of biotechnology processes
and products involves complex legal and factual questions and, to date,
there has emerged no consistent policy regarding the breadth of claims in
biotechnology patents.
If the Company fails to obtain patents or exclusive licenses for its
technology and products, no assurance can be given that others will not
independently develop substantially equivalent proprietary products and
processes. The Company seeks to protect its trade secrets and proprietary
know-how, in part, with confidentiality agreements with employees and
consultants. There can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any breach or
that the Company's trade secrets will not otherwise become known or be
independently developed by competitors. In addition, protracted and costly
litigation may be necessary to enforce rights of the Company and defend
against claims of infringement of rights of others.
Government Regulation
Ongoing research and development activities, including preclinical and
clinical testing, and the production and marketing of the Company's
products are subject to regulation by numerous governmental authorities in
the United States and other countries. All of the Company's products and
manufacturing processes and facilities require governmental licensing or
approval prior to commercial use. The approval process applicable to
clinical diagnostic products of the type which may be developed by the
Company usually takes a number of years and typically requires substantial
expenditures. Delays in obtaining regulatory approvals would adversely
affect the marketing of products developed by the Company and the Company's
ability to receive product revenues or royalties. There can be no
assurance that regulatory approvals for such products will be obtained
without lengthy delays, if at all.
Attraction and Retention of Key Employees
Recruiting and retaining qualified scientific and production personnel to
perform research and development work and product manufacturing is critical
to the Company's success. Although the Company believes it has been and
will be able to attract and retain such personnel, there can be no
assurance that the Company will be successful. In addition, the Company's
anticipated growth and expansion into areas and activities requiring
additional expertise, such as clinical testing, government approvals,
production and marketing, will require the addition of new management
personnel and the development of additional expertise by existing
management personnel. The failure to attract and retain such personnel or
to develop such expertise would adversely affect the Company's business.
ITEM 2. PROPERTIES
The Company does not own any real property. R&D Systems leases space in
three adjacent buildings located in Minneapolis, Minnesota. The main
building, consisting of approximately 85,000 square feet, is located at 614
McKinley Place N.E., and houses administrative, marketing and Biotechnology
Division manufacturing and research operations. Hematology Division
manufacturing and shipping operations are located at 640 McKinley Place
N.E. and cover approximately 47,000 square feet. The third building, which
the Company moved into in May 1996, is located at 2201 Kennedy Street.
This building houses administrative and Biotechnology Division
manufacturing and research operations. The Company currently occupies
107,000 square feet in this building, leaving approximately 98,000 square
feet available for future expansion. In the first half of fiscal 1997, the
Company also began using an additional 20,000 square feet in newly
constructed space connecting the three buildings. This area houses a
lunchroom, a new library and additional warehouse space. The current lease
for the above buildings extends through December 2017. Base rent for
fiscal 1997 was $1,488,000.
R&D Europe leases approximately 12,500 square feet in two buildings in
Abingdon, England where all of R&D Europe Ltd. operations are located. R&D
GmbH leases approximately 2,500 square feet as a sales office in Wiesbaden-
Nordenstadt, Germany. Base rent for the facilities in England and Germany
was $260,000 and $39,000, respectively, in fiscal 1997.
The Company believes the leased property discussed above is adequate to
meet its occupancy needs in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to nor is any of its property subject to any
material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during
the fourth quarter of the Company's 1997 fiscal year.
EXECUTIVE OFFICERS OF THE COMPANY
(a) The names, ages and positions of each executive officer of the Company
are as follows:
<TABLE>
<CAPTION>
Name Age Position Officer Since
---- --- -------- -------------
<S> <C> <C> <C>
Thomas E. Oland 56 Chairman of the Board, President,
Treasurer and Director 1985
Dr. James A.
Weatherbee 54 Vice President and Chief Scientific
Officer 1995
Dr. Monica Tsang 52 Vice President, Research 1995
Dr. Thomas C.
Detwiler 64 Vice President, Scientific and
Regulatory Affairs 1995
Marcel Veronneau 43 Vice President, Hematology Operations 1995
</TABLE>
The term of office of each executive officer is from one annual meeting of
directors until the next annual meeting of directors or until a successor
is elected. There are no arrangements or understandings among any of the
executive officers and any other person (not an officer or director acting
as such) pursuant to which any of the executive officers was selected as an
officer of the Company. Dr. James A. Weatherbee and Dr. Monica Tsang are
husband and wife.
(b) The business experience of the executive officers during the past five
years is as follows:
Thomas E. Oland has been Chairman of the Board, President and Treasurer of
the Company since December 1985.
Dr. James A. Weatherbee was elected a Vice President of the Company in
March 1995. Prior thereto, he served as Chief Scientific Officer for R&D
Systems' Biotechnology Division and has been an employee of R&D Systems
since 1985.
Dr. Monica Tsang was elected a Vice President of the Company in March 1995.
Prior thereto, she served as Executive Director of Cell Biology for R&D
Systems' Biotechnology Division and has been an employee of R&D Systems
since 1985.
Dr. Thomas Detwiler was elected a Vice President of the Company in March
1995. Prior thereto, he served as Vice President of Scientific and
Clinical Affairs for R&D Systems' Biotechnology Division and has been an
employee of R&D Systems since 1993. Prior to joining R&D Systems, Dr.
Detwiler was Professor of Biochemistry at State University of New York
Health Sciences Center, Brooklyn, New York.
Marcel Veronneau was elected a Vice President of the Company in March 1995.
Prior thereto, he served as Director of Operations for R&D Systems'
Hematology Division since joining the Company in 1993. Prior to 1993, Mr.
Veronneau served as Managing Director at Hycel S.A., a former subsidiary of
the Company.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock trades on The Nasdaq Stock Market under the symbol
"TECH." The following table sets forth for the periods indicated the range of
the closing price per share for the Company as reported by Nasdaq.
<TABLE>
<CAPTION>
1997 Sales Price 1996 Sales Price
---------------- ----------------
High Low High Low
----- ----- ----- -----
<S> <C> <C> <C> <C>
1st Quarter $30.50 $20.25 $20.50 $13.25
2nd Quarter 26.25 22.00 24.25 17.63
3rd Quarter 26.25 22.13 26.13 17.75
4th Quarter 30.50 22.75 33.00 22.50
</TABLE>
As of September 15, 1997, there were approximately 370 shareholders of record
and approximately 600 beneficial shareholders of the Company's common stock.
TECHNE Corporation has never paid cash dividends on its common stock. Payment
of dividends is within the discretion of TECHNE's Board of Directors,
although the Board of Directors plans to retain earnings for the foreseeable
future for operating the Company's business.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Revenue, Earnings and Cash Flow
Data for the Years Ended June 30 1997 1996 1995 1994(1) 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales $60,924 $54,589 $47,716 $40,330 $28,738
Gross margin 68.7% 65.2% 61.3% 57.9% 54.3%
Selling, general and
administrative expense 23.9% 23.7% 23.4% 22.9% 17.4%
Research and development expenses 19.2% 19.1% 18.0% 16.0% 12.7%
Interest expense 29 2 9 22 69
Earnings before income taxes 15,988 12,592 9,648 7,223 6,469
Net earnings 10,882 8,638 6,706 5,094 4,382
Net earnings per common and
common equivalent share 1.12 0.89 0.70 0.54 0.46
Capital expenditures 4,243 6,377 1,311 1,332 2,626
Depreciation and amortization 2,322 1,872 1,655 1,837 1,349
Change in net working capital 6,639 4,573 6,310 4,739 3,466
Net cash provided by operating
activities 12,477 9,760 7,314 6,304 4,471
Return on sales 17.9% 15.8% 14.1% 12.6% 15.2%
Return on average equity 25.0% 25.3% 25.6% 25.0% 30.2%
Balance Sheet, Common Stock and
Employee Data as of June 30 1997 1996 1995 1994(1) 1993
- -------------------------------- ------- ------- ------- ------- -------
Cash, equivalents and
short-term investments $24,752 $19,250 $15,945 $10,866 $ 7,818
Receivables 9,114 8,380 7,386 6,593 4,791
Inventories 4,087 3,653 3,266 2,514 1,684
Working capital 34,899 28,260 23,687 17,377 12,638
Total assets 53,922 44,393 34,062 26,806 20,374
Long-term debt -- -- -- -- 30
Stockholders' equity 48,081 38,874 29,520 22,955 17,758
Average common and common
equivalent shares (in thousands) 9,731 9,721 9,522 9,517 9,447
Book value per share 5.09 4.08 3.15 2.46 1.91
Share price (fiscal year):
High 30.50 33.00 15.88 16.25 18.50
Low 20.25 13.25 8.75 9.25 9.00
Price to earnings ratio 27 33 19 19 32
Current ratio 8.12 6.62 6.75 5.88 6.31
Quick ratio 6.91 5.49 5.66 4.91 5.29
Employees 326 341 315 277 206
</TABLE>
(1) The Company acquired its English subsidiary, R&D Systems Europe Ltd.
effective July 1, 1993.
The Company has not declared any dividends in the past, and it is not
anticipated that it will declare any dividends in the foreseeable future.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPANY STRUCTURE
TECHNE (the Company) has two operating subsidiaries: R&D Systems, Inc. (R&D
Systems) and R&D Systems Europe Ltd. (R&D Europe). R&D Systems, located in
Minneapolis, Minnesota, has two divisions: Biotechnology and Hematology.
The Biotechnology Division develops and manufactures purified cytokines
(proteins), antibodies and assay kits which are sold to biomedical
researchers and clinical research laboratories. The Hematology Division
develops and manufactures whole blood hematology controls and calibrators
which are sold to hospitals and clinical laboratories to check the
performance of hematology instruments to assure the accuracy of hematology
test results. R&D Europe, located in Abingdon, England, was acquired by the
Company on July 1, 1993 and is the European distributor of R&D Systems'
biotechnology products. In fiscal 1996, R&D Europe incorporated a sales
subsidiary, R&D Systems GmbH, in Germany. The Company also has a foreign
sales corporation, Techne Export Inc.
RESULTS OF OPERATIONS
Net sales for fiscal 1997 were $60,923,750, an increase of $6,334,696 (12%)
from fiscal 1996. Sales by R&D Europe for the period increased $2,555,914
(16%), while sales by R&D Systems increased $3,778,782 (10%). Approximately
74% of the increase in consolidated sales for the fiscal year was due to the
increase in sales of R&D Systems' proteins and antibodies. Sales of proteins
and antibodies by R&D Systems and R&D Europe for fiscal 1997 were $18,757,307
compared to $14,062,891 in fiscal 1996. Offsetting the increase in sales of
biotechnology products, sales of hematology products decreased $683,481 as
a result of the loss of an OEM customer at the end of fiscal 1996. This loss
was partially offset by higher retail sales and increased sales to several
other OEM customers in fiscal 1997.
Net sales for fiscal 1996 were $54,589,054, an increase of $6,872,888 (14%)
from fiscal 1995. Sales by R&D Europe for the period increased $2,482,778
(18%), while sales by R&D Systems increased $4,390,110 (13%). Approximately
43% of the increase in consolidated sales for the fiscal year was due to
the increase in sales of R&D Systems' immunoassay (Quantikine) kits. Sales of
immunoassay kits by R&D Systems and R&D Europe for fiscal 1996 were
$21,502,403 compared to $18,568,719 in fiscal 1995. In addition, 14% of the
increase in consolidated sales for the fiscal year was due to increased
sales of other R&D Systems' products by R&D Europe and another 13% of the
increase was from an increase in sales of R&D Europe in-house developed
products.
Net sales for fiscal 1995 were $47,716,166, an increase of $7,386,534 (18%)
from fiscal 1994. Sales by R&D Europe for the period increased $3,405,455
(33%), while sales by R&D Systems increased $3,981,079 (13%). Approximately
59% of the increase in consolidated sales for the fiscal year was due to
the increase in sales of R&D Systems' Quantikine kits. Sales of these kits by
R&D Systems and R&D Europe for fiscal 1995 were $18,568,719 compared to
$14,242,364 in fiscal 1994. In addition, 10% of the increase in consolidated
sales for the fiscal year was due to increased sales of other R&D Systems'
products by R&D Europe and another 10% of the increase was due to increased
distribution of products from non-affiliated companies by R&D Europe.
Gross margins, as a percentage of sales, increased from 65.2% in fiscal
1996 to 68.7% in fiscal 1997. R&D Europe gross margins increased from 51.2%
to 52.5% due to favorable exchange rate variances on purchases from R&D
Systems as a result of a weakening dollar. Biotechnology Division gross
margins increased from 69.3% to 71.8% due to lower royalty expense as a
result of the conclusion of royalty payments to Amgen Inc. and lower
manufacturing costs due to increased production volumes. Hematology Division
gross margins increased from 40.1% in fiscal 1996 to 42.9% in fiscal 1997.
This increase in gross margin for the Hematology Division was the result of
changes in product mix.
Gross margins, as a percentage of sales, increased from 61.3% in fiscal 1995
to 65.2% in fiscal 1996. R&D Europe gross margins increased from 47.5% to
51.2% as a result of a change in product mix and increased margins on products
sold through its German subsidiary. Biotechnology Division gross margins
increased from 67.4% to 69.3% due to lower packaging costs and lower
manufacturing costs due to increased production volumes. Hematology Division
gross margins increased from 36.4% in fiscal 1995 to 40.1% in fiscal 1996.
This increase in gross margin for the Hematology Division was the result of
changes in product mix and lower raw material costs.
Gross margins, as a percentage of sales, increased from 57.9% in fiscal 1994
to 61.3% in fiscal 1995. The increase was primarily due to an increase in R&D
Europe gross margins from 44.7% to 47.5%. This increase was due to favorable
exchange rate variances on purchases from R&D Systems as result of a
weakening dollar. Biotechnology Division gross margins increased slightly
from 66.6% to 67.4% and Hematology Division gross margins increased from 33.1%
in fiscal 1994 to 36.4% in fiscal 1995. This increase in gross margin for the
Hematology Division was the result of increased higher margin retail sales
and manufacturing efficiencies.
Selling, general and administrative expenses increased $1,634,862 (13%) in
fiscal 1997. Included in selling, general and administrative expenses for
fiscal 1997 was a restructuring charge of approximately $450,000 related to
R&D Europe. The restructuring involved the withdrawal from the molecular
biology market, the transfer of all major marketing and advertising
activities to R&D Systems and the transfer of immunoassay kit development
and manufacturing activities from R&D Europe to R&D Systems. R&D Europe's
sales function was not affected by the restructuring. In addition to the
restructure charge, R&D Europe's selling, general and administrative expenses
increased $250,000 as a result of an increase in the exchange rate used to
convert R&D Europe financial statements into U.S. dollars. The increase was
due to the declining value of the dollar. During fiscal 1997 and 1996 the
average exchange rate was 1.63 and 1.55 dollars per British pound,
respectively. The increase in consolidated selling, general and administrative
expenses in fiscal 1997 was also the result of a $340,000 increase in
Biotechnology Division sales and marketing expenses as a result of additional
staff and increased advertising and promotion activities.
Selling, general and administrative expenses increased $1,776,325 (16%) in
fiscal 1996. The largest increase in selling, general and administrative
expenses was attributable to R&D Europe operations. During fiscal 1996, R&D
Europe opened a sales subsidiary in Germany and costs associated with
start-up and operations were approximately $735,000. In addition, $339,000 of
the increase in selling, general and administrative expenses was due to R&D
Europe's increase in sales and marketing staff in England and increased
advertising.
Selling, general and administrative expenses increased $1,939,004 (21%) in
fiscal 1995. Approximately $845,000 of the increase in selling, general, and
administrative expenses for the fiscal year was due to wages and benefits
related to the Biotechnology and Hematology Division administrative and sales
staff added since the prior year. In addition, approximately $537,000 ofthe
increase was due to marketing costs related to additional advertising,
promotional materials and catalog printing costs incurred by R&D Systems'
Biotechnology Division and R&D Europe.
Research and development expenses increased $1,288,558, $1,808,866 and
$2,133,647 in fiscal 1997, 1996, and 1995, respectively. The increases in
research and development expenses were primarily the result of the
development and release of new cytokines, antibodies and Quantikine kits by
R&D Systems' Biotechnology Division and the development and release of
several new Hematology Division control products. Included in research and
development expenses for fiscal 1997, 1996 and 1995 were $1,400,000,
$1,250,000 and $1,250,000 related to payments made under a Joint Biological
Research Agreement with British Bio-technology Group plc, R&D Europe's
former parent. In June 1997, the Joint Research Agreement was extended an
additional five years for 100,000 British Pounds (approximately $165,000 at
June 30, 1997) per year. Also included in research and development in
fiscal 1997 and 1996 is $400,000 per year related to a Research and
Development Agreement with Cistron Biotechnology, Inc. Management of the
Company believes that R&D Systems will continue to develop new products.
Earnings before taxes increased from $12,591,870 in fiscal 1996 to
$15,987,662 in fiscal 1997. This increase in earnings was primarily the
result of a $3,312,156 increase in R&D Systems' Biotechnology Division
earnings and a $329,872 increase in R&D Europe earnings. These increases in
earnings before taxes were due to increased sales and gross margins, partially
offset by higher expenses. Hematology Division earnings before taxes were
slightly less than fiscal 1996 as a result of lower sales.
Earnings before taxes increased from $9,648,042 in fiscal 1995 to $12,591,870
in fiscal 1996. This increase in earnings was primarily the result of a
$2,203,098 increase in R&D Systems' Biotechnology Division earnings and a
$786,053 increase in Hematology Division earnings. The increase in earnings
before taxes was due to increased sales and gross margins, partially offset
by higher expenses.
Earnings before taxes increased from $7,222,662 in fiscal 1994 to $9,648,042
in fiscal 1995. This increase in earnings was primarily the result of a
$1,082,547 increase in R&D Systems' Biotechnology Division earnings and a
$1,299,464 increase in R&D Europe earnings, partially offset by a $72,047
decrease in Hematology Division earnings. The increase in Biotechnology
Division and R&D Europe earnings before taxes was due to increased sales and
gross margins, partially offset by higher expenses. The decrease in
Hematology Division earnings before taxes was the result of increased sales
and gross margins offset by higher expenses.
Income taxes for fiscal 1997 were provided at a rate of approximately 32% of
consolidated pretax earnings. U.S. federal and state taxes have been reduced
as a result of tax exempt interest income, the benefit of the foreign sales
corporation, and the federal and state credit for research and development
expenditures. Foreign income taxes have been provided at a rate of 36% of
pretax earnings from United Kingdom operations slightly offset by a tax
benefit as a result of a loss from German operations.
Income taxes for fiscal 1996 were provided at a rate of approximately 31% of
consolidated pretax earnings. U.S. federal and state taxes have been reduced
as a result of tax exempt interest income, the benefit of the foreign sales
corporation, and the state credit for research and development expenditures.
Foreign income taxes have been provided at a rate of 36% of pretax earnings
from United Kingdom operations partially offset by a tax benefit as a result
of a loss from German operations.
Income taxes for fiscal 1995 were provided at a rate of approximately 30% of
consolidated pretax earnings. U.S. federal and state taxes have been reduced
as a result of the federal and state credit for research and development
expenditures and the benefit of the foreign sales corporation. Foreign income
taxes have been provided at a rate of 33%.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments at June 30, 1997, were
$24,752,257, an increase of 29% from the prior year. At June 30, 1996, cash,
equivalents and short-term investments were $19,249,535 compared to
$15,945,223 at June 30, 1995, an increase of 21%. The Company has an
unsecured line of credit of $750,000 available at June 30, 1997. The interest
rate on the line of credit is at the prime rate of 8.50% at June 30, 1997.
Management of the Company expects to be able to meet its future cash and
working capital requirements for operations and capital additions through
currently available funds and cash generated from operations.
Cash flows from operating activities
The Company generated cash from operations of $12,476,548, $9,759,549 and
$7,313,658 in fiscal 1997, 1996 and 1995, respectively. The majority of cash
generated from operating activities in all three years resulted from an
increase in net earnings after adjustment for noncash expenses, partially
offset by an increase in accounts receivable due to increased sales.
Cash flows from investing activities
Capital additions were $4,243,156, $6,376,922 and $1,311,371 in fiscal 1997,
1996 and 1995, respectively. Included in fiscal 1997 and 1996 capital
additions are leasehold improvements of $2,935,000 and $4,329,000 related to
R&D Systems' expansion into an adjacent building. The remaining capital
additions in fiscal 1997, 1996, and 1995 were for laboratory, manufacturing
and computer equipment. Total capital additions for equipment and leasehold
improvements planned for fiscal 1998 are expected to be approximately $3
million (including $1 million for R&D Systems' building remodeling). All
capital additions are expected to be financed through currently available
cash, cash generated from operations and maturities of short-term investments.
The Company invested a net $4,326,439, $1,199,721 and $5,529,371 in
short-term investments in fiscal 1997, 1996 and 1995, respectively. The
Company's investment policy is to place excess cash in tax-exempt bonds with
the objective of obtaining the highest possible return with the lowest risk,
while keeping funds accessible.
Subsequent to June 30, 1997, the Company signed a letter of intent to
purchase up to 5 million shares of Convertible Preferred Stock of a start-up
company organized principally for the purpose of developing therapeutics
based on the biology of chemokines and chemokine receptors. Subject to the
completion of definitive agreements and certain performance milestones by the
start-up company, the Company will invest $5 million over two years in
exchange for ownership of approximately 40%. The investment is expected to be
financed through currently available cash and maturities of short-term
investments.
In fiscal 1995, the Company made a $1,000,000 payment to Cistron
Biotechnology, Inc. under a License and Supply Agreement. The agreement
grants the Company a sublicense to sell recombinant interleukin-1 beta
protein and interleukin-1 precursor assays made by Cistron to the research
market worldwide. The payment is being amortized over five years. The Company
and Cistron also signed a Research and Development Agreement under which the
Company will support Cistron's development of an interleukin-1 beta assay kit
for the detection and monitoring of periodontal disease in humans, in
exchange for co-exclusive marketing rights to such product. Payments under
the research agreement will be made in quarterly installments of $100,000
through December 31, 1997 and are expected to be financed through cash
generated from operations.
Cash flows from financing activities
The Company received $582,846, $569,125 and $211,962 for the exercise of
options for 45,500, 95,000 and 84,604 shares of common stock in fiscal 1997,
1996 and 1995, respectively.
In fiscal 1997, 1996 and 1995, the Company purchased and retired 127,300,
36,200 and 45,000 shares of Company common stock at a market value of
$3,225,205, $676,206 and $630,752, respectively. In May 1995, the Company
announced a plan to purchase and retire up to $5 million of its common stock.
In April 1997, this was increased an additional $5 million, subject to market
conditions. Any such purchases will be funded from currently available cash.
Net cash of $29,875 was used to reduce short and long term debt in fiscal
1995.
The Company has never paid dividends and has no plans to do so in fiscal
1998. The Company's earnings will be retained for reinvestment in the
business.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF EARNINGS
TECHNE Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $60,923,750 $54,589,054 $47,716,166
Cost of sales 19,094,827 18,998,931 18,463,597
----------- ----------- -----------
Gross margin 41,828,923 35,590,123 29,252,569
Operating expenses (income):
Selling, general and administrative 14,585,334 12,950,472 11,174,147
Research and development (Note E) 11,701,822 10,413,264 8,604,398
Amortization of intangible assets
(Note A) 235,508 235,508 291,619
Interest expense 29,357 2,242 8,641
Interest income (710,760) (603,233) (474,278)
----------- ----------- -----------
25,841,261 22,998,253 19,604,527
----------- ----------- -----------
Earnings before income taxes 15,987,662 12,591,870 9,648,042
Income taxes (Note H) 5,106,000 3,954,000 2,942,000
----------- ----------- -----------
Net earnings $10,881,662 $ 8,637,870 $ 6,706,042
=========== =========== ===========
Net earnings per common and common
equivalent share $ 1.12 $ .89 $ .70
Average common and common
equivalent shares outstanding 9,731,266 9,721,425 9,521,956
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
TECHNE Corporation and Subsidiaries
<TABLE>
<CAPTION>
June 30,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,598,367 $ 7,422,084
Short-term available-for-sale
investments (Note A) 16,153,890 11,827,451
Trade accounts receivable, less allowance
for doubtful accounts of $52,000 and
$113,000, respectively 9,114,447 8,379,531
Inventories (Note B) 4,087,161 3,653,117
Deferred income taxes (Note H) 1,322,000 1,262,000
Prepaid expenses 521,493 744,824
----------- -----------
Total current assets 39,797,358 33,289,007
Equipment and leasehold improvements (Note C) 11,252,741 9,045,267
Intangible assets (Note A) 365,311 600,819
Prepaid license fee 250,800 409,200
Deferred income taxes (Note H) 1,703,000 1,049,000
Other long-term assets (Note K) 552,500 --
----------- -----------
$53,921,710 $44,393,293
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 1,609,362 $ 1,720,873
Salaries, wages and related accounts 1,790,035 1,725,124
Other accounts payable and accrued expenses 498,873 876,346
Income taxes payable 1,000,096 706,679
----------- -----------
Total current liabilities 4,898,366 5,029,022
Deferred rent 942,300 490,200
Contingencies and commitments (Note E) -- --
Stockholders' equity (Note F):
Undesignated capital stock, no par; authorized
5,000,000 shares; none issued or outstanding -- --
Common stock, par value $.01 a share;
authorized 50,000,000 shares; issued and
outstanding 9,437,728 and 9,519,528 shares,
respectively 94,377 95,195
Additional paid-in capital 12,653,449 11,448,558
Retained earnings 34,903,146 27,245,416
Accumulated foreign currency translation
adjustments 430,072 84,902
----------- -----------
Total stockholders' equity 48,081,044 38,874,071
----------- -----------
$53,921,710 $44,393,293
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TECHNE Corporation and Subsidiaries
<TABLE>
<CAPTION>
Accumu-
lated
Foreign
Currency
Common Stock Additional Transla-
------------------ Paid-in Retained tion Ad-
Shares Amount Capital Earnings justment
--------- ------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balances at June 30,
1994 9,329,151 $93,292 $ 8,110,798 $14,677,038 $ 73,578
Net earnings -- -- -- 6,706,042 --
Common stock issued:
Exercise of options
(Note F) 93,695 936 236,026 -- --
Surrender and
retirement of
stock to exercise
options (Note K) (2,500) (25) (6,850) (18,125) --
Repurchase and re-
tirement of common
stock (45,000) (450) -- (630,302) --
Tax benefit from
exercise of stock
options -- -- 207,000 -- --
Change in foreign
currency transla-
tion adjustments
(Note A) -- -- -- -- 71,137
--------- ------- ----------- ----------- --------
Balances at June 30,
1995 9,375,346 93,753 8,546,974 20,734,653 144,715
Net earnings -- -- -- 8,637,870 --
Common stock issued:
Exercise of options
(Note F) 239,689 2,397 2,018,584 -- --
Surrender and
retirement of
stock to exercise
options (Note K) (59,307) (593) -- (1,451,263) --
Repurchase and re-
tirement of common
stock (36,200) (362) -- (675,844) --
Tax benefit from
exercise of stock
options -- -- 883,000 -- --
Change in foreign
currency transla-
tion adjustments
(Note A) -- -- -- -- (59,813)
--------- ------- ----------- ----------- --------
Balances at June 30,
1996 9,519,528 95,195 11,448,558 27,245,416 84,902
Net earnings -- -- -- 10,881,662 --
Common stock issued:
Exercise of options
(Note F) 45,500 455 582,391 -- --
Repurchase and re-
tirement of common
stock (127,300) (1,273) -- (3,223,932) --
Tax benefit from
exercise of stock
options -- -- 151,000 -- --
Fair value of
options granted
(Note K) -- -- 471,500 -- --
Change in foreign
currency transla-
tion adjustments
(Note A) -- -- -- -- 345,170
--------- ------- ----------- ----------- --------
Balances at June 30,
1997 9,437,728 $94,377 $12,653,449 $34,903,146 $430,072
========= ======= =========== =========== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE K)
TECHNE Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 10,881,662 $ 8,637,870 $ 6,706,042
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation and amortization 2,321,963 1,872,176 1,654,814
Deferred income taxes (662,000) (974,000) (188,000)
Tax benefit from exercise
of options 151,000 883,000 207,000
Decrease in prepaid license fee 158,400 158,400 --
Increase in deferred rent 452,100 67,000 130,800
Other 183,670 90,025 (45,134)
Change in current assets and
current liabilities:
(Increase) decrease in:
Trade and other accounts
receivable (626,936) (1,151,878) (791,147)
Inventories (379,051) (406,752) (732,090)
Prepaid expenses 233,617 (351,486) (193,473)
Increase (decrease) in:
Trade and other accounts
payable (527,435) 404,125 338,131
Salaries, wages and related
accounts 60,284 376,333 208,268
Income taxes payable 229,274 154,736 18,447
------------ ------------ -----------
Total adjustments 1,594,886 1,121,679 607,616
------------ ------------ -----------
Net cash provided by operating
activities 12,476,548 9,759,549 7,313,658
Cash flows from investing activities:
Additions to equipment and
leasehold improvements (4,243,156) (6,376,922) (1,311,371)
Purchase of short-term available-
for-sale investments (15,967,440) (11,859,797) (10,438,674)
Proceeds from sale of short-term
available-for-sale investments 11,641,001 10,660,076 4,909,303
Increase in other assets (250,000) -- --
Increase in prepaid license fee -- -- (567,600)
------------ ------------ -----------
Net cash used in investing
activities (8,819,595) (7,576,643) (7,408,342)
Cash flows from financing activities:
Issuance of common stock 582,846 569,125 211,962
Repurchase of common stock (3,225,205) (676,206) (630,752)
Payments on long-term debt -- -- (29,875)
------------ ------------ -----------
Net cash used in financing
activities (2,642,359) (107,081) (448,665)
Effect of exchange rate changes on
cash 161,689 28,766 (17,504)
------------ ------------ -----------
Net increase (decrease) in cash
and cash equivalents 1,176,283 2,104,591 (560,853)
Cash and cash equivalents at
beginning of year 7,422,084 5,317,493 5,878,346
------------ ------------ -----------
Cash and cash equivalents at end
of year $ 8,598,367 $ 7,422,084 $ 5,317,493
============ ============ ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TECHNE Corporation and Subsidiaries
Years Ended June 30, 1997, 1996 and 1995
A. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS: The Company is engaged domestically in the
development and manufacture of biotechnology products and hematology
calibrators and controls through its wholly-owned subsidiary, Research
and Diagnostic Systems, Inc. Through its wholly-owned English subsidiary,
R&D Systems Europe Ltd., the Company distributes biotechnology products
throughout Europe. In fiscal 1996, R&D Systems Europe Ltd. incorporated a
sales subsidiary, R&D Systems GmbH, in Germany. The Company also has a
foreign sales corporation, Techne Export Inc.
ESTIMATES: The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
RISKS AND UNCERTAINTIES: There are no concentrations of business
transacted with a particular customer or supplier nor concentrations of
revenue from a particular product or geographic area that would severely
impact the Company in the near term.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries.
All material intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION: The Company recognizes revenues upon shipment of
products. Revenues are reduced to reflect estimated returns.
RESEARCH AND DEVELOPMENT: Research and development expenditures are
expensed as incurred. Development activities generally relate to creating
new products, improving or creating variations of existing products, or
modifying existing products to meet new applications.
TRANSLATION OF FOREIGN FINANCIAL STATEMENTS: Assets and liabilities of
the Company's foreign operations are translated at year end rates of
exchange and the foreign statements of earnings are translated at the
average rate of exchange for the year. Gains and losses resulting from
translating foreign currency financial statements are not included in
operations but are accumulated in a separate component of stockholders'
equity. Foreign currency transaction gains and losses are included in
operations.
SHORT-TERM INVESTMENTS: Short-term investments consist of tax-exempt
bonds with original maturities of generally three months to one year.
The Company reports marketable securities at fair market value. Unrealized
gains and losses on available-for-sale securities are excluded from income,
but are included in a separate component of stockholders' equity. The Company
considers all of its marketable securities available-for-sale. Fair market
values are based on quoted market prices.
Proceeds from sales of available-for-sale securities were $11,641,001,
$10,660,076 and $4,909,303 during fiscal 1997, 1996 and 1995, respectively.
There were no material gross realized gains or losses on these sales.
Realized gains and losses are determined on the specific identification
method. Unrealized gains and losses at June 30, 1997, 1996 and 1995 were
not material.
INVENTORIES: Inventories are stated at the lower of cost (first-in,
first-out method) or market.
DEPRECIATION AND AMORTIZATION: Equipment is being depreciated using the
straight-line method over an estimated useful life of five years.
Leasehold improvements are being amortized over estimated useful lives of
five to fifteen years.
INTANGIBLES: Intangible assets, related to the acquisition of Amgen
Inc.'s research reagent and diagnostic kit business in fiscal 1992 and
the acquisition of R&D Systems Europe Ltd. in fiscal 1994, are being
amortized on a straight-line basis over the estimated useful lives and
consist of the following:
<TABLE>
<CAPTION>
June 30,
Useful Life 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Customer list 3 years $1,010,000 $1,010,000
Technology licensing agreements 16 years 500,000 500,000
Goodwill 6 years 1,225,547 1,225,547
---------- ----------
2,735,547 2,735,547
Less accumulated amortization 2,370,236 2,134,728
---------- ----------
$ 365,311 $ 600,819
========== ==========
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS: Management periodically reviews the
carrying value of long-term assets based on the estimated undiscounted
future cash flows expected to result from the use of these assets. Should
the sum of the expected future net cash flows be less than the carrying
value, an impairment loss would be recognized. An impairment loss would
be measured by the amount by which the carrying value of the asset
exceeds the fair value of the asset based on discounted estimated future
cash flows. To date, management has determined that no impairment exists.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on
hand and highly liquid investments with original maturities less than
three months.
STOCK OPTIONS: As permitted by SFAS 123, the Company has elected to
continue following the guidance of APB 25 for measurement and recognition
of stock-based transactions with employees. No compensation cost has been
recognized for stock options granted to employees under the plans because
the exercise price of all options granted was at least equal to the fair
value of the common stock at the date of grant.
EARNINGS PER SHARE: Earnings per share are based on the weighted average
number of common shares outstanding, including common share equivalents
of stock options and warrants outstanding. Net earnings per share
assuming full dilution would be substantially the same.
RECENT ACCOUNTING STANDARD: Earnings per share for the years ended June
30, 1997, 1996 and 1995 are calculated using Accounting Principles Board
(APB) No. 15 "Earnings Per Share." In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 128 (SFAS 128) "Earnings Per Share," which is effective for
periods ending after December 15, 1997. SFAS 128 revises the standards
for computing and presenting earnings per share (EPS). The Company will
continue to apply APB Opinion No. 15 to compute the EPS through the
effective date. EPS for the year ended June 30, 1997 computed under SFAS
128 would have resulted in basic and diluted EPS of $1.15 and $1.12,
respectively.
RECLASSIFICATIONS: Certain reclassifications have been made to prior
years' financial statements to conform to the current year presentation.
These reclassifications had no impact on net earnings or stockholders'
equity as previously reported.
B. INVENTORIES:
Inventories consist of:
<TABLE>
<CAPTION>
June 30,
1997 1996
---------- ----------
<S> <C> <C>
Raw materials $2,105,836 $1,808,605
Finished goods 1,770,742 1,710,272
Work in process 89,100 34,917
Supplies 121,483 99,323
---------- ----------
$4,087,161 $3,653,117
========== ==========
</TABLE>
C. EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements consist of:
<TABLE>
<CAPTION>
June 30,
1997 1996
----------- -----------
<S> <C> <C>
Cost:
Leasehold improvements $ 9,063,354 $ 6,114,009
Laboratory equipment 9,513,329 8,463,653
Office and computer equipment 2,671,947 2,417,311
----------- -----------
21,248,630 16,994,973
Less accumulated depreciation
and amortization 9,995,889 7,949,706
----------- -----------
$11,252,741 $ 9,045,267
=========== ===========
</TABLE>
D. DEBT:
The Company's short-term line of credit facility consists of an unsecured
line of credit of $750,000 at June 30, 1997. The interest rate charged on the
line of credit is at the prime rate of 8.50% at June 30, 1997. There were no
borrowings on the line in the current year.
E. CONTINGENCIES AND COMMITMENTS:
The Company leases buildings, vehicles and various data processing, office
and laboratory equipment under operating leases. These leases provide for
renewal or purchase options during or at the end of the lease periods. At
June 30, 1997, aggregate net minimum rental commitments under noncancelable
leases having an initial or remaining term of more than one year are payable
as follows:
Year Ending June 30:
- --------------------
1998 $ 1,924,689
1999 2,001,866
2000 2,309,498
2001 2,517,570
2002 2,144,408
Thereafter 42,768,809
-----------
$53,666,840
===========
Total rent expense was approximately $1,893,000, $1,489,000, and $1,180,000
for the years ended June 30, 1997, 1996 and 1995, respectively.
In fiscal 1994, the Company entered into a four year Joint Biological
Research Agreement with British Bio-technology Group plc. Under the
agreement, R&D Systems Europe Ltd. received the exclusive right to develop,
manufacture, market and sell biomolecules developed by British Bio-technology
Group, plc. or its subsidiaries and any resulting diagnostic kits in the
research reagent and diagnostic markets. R&D Systems Europe Ltd. will pay a
total of $5 million over the term of the agreement, plus royalties for a
period of 14 years at rates of 3% to 10% on sales of all products licensed
under the agreement. Research and development expenses include $1,400,000,
$1,250,000, and $1,250,000 for the years ended June 30, 1997, 1996, and 1995,
respectively, under this agreement. In June 1997, the agreement was extended
an additional five years for 100,000 British Pounds (approximately $165,000
at June 30, 1997) per year plus royalties.
In fiscal 1995, the Company entered into a Research and Development Agreement
with Cistron Biotechnology, Inc. under which the Company will pay $1,000,000
in support of Cistron's development of an interleukin-1 beta assay kit for
the detection and monitoring of periodontal disease in humans, in exchange
for co-exclusive marketing rights to the assay kit. Payments under the
agreement of $400,000, which are included in research and development
expenses, were made during each of the years ended June 30, 1997 and 1996.
Remaining payments under this agreement are $200,000 for the year ending June
30, 1998.
F. STOCK OPTIONS AND WARRANTS:
The Company has stock option plans which provide for the granting of stock
options to employees (the TECHNE Corporation 1987 Incentive Stock Option
Plan) and to employees, officers, directors and consultants (the TECHNE
Corporation 1988 Nonqualified Stock Option Plan). The plans are administered
by the Board of Directors, or a committee designated by the Board, which
determines the persons who are to receive awards under the plans, the number
of shares subject to each award and the term and exercise price of each
option. The maximum term of options granted under both plans is ten years.
The number of shares of common stock authorized to be issued are 800,000 and
500,000 under TECHNE Corporation 1987 Incentive Stock Option Plan and the
TECHNE Corporation 1988 Nonqualified Stock Option Plan, respectively.
Stock option activity consists of the following:
<TABLE>
<CAPTION>
Year Ended June 30
1997 1996 1995
----------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 532,625 $12.89 552,814 $ 9.82 524,447 $ 8.23
Granted 226,776 23.27 219,500 15.77 125,000 11.12
Exercised (45,500) 12.81 (239,689) 8.43 (93,695) 2.53
Canceled (71,000) 13.32 -- -- (2,938) 13.44
------- -------- -------- -------- ------- --------
Outstanding at
end of year 642,901 $16.51 532,625 $12.89 552,814 $ 9.82
======= ======== ======== ======== ======= =======
Options exercisable
at end of year 362,251 $13.78 242,277 $11.09 346,590 $ 8.73
======= ======== ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Wgtd. Wgtd. Wgtd.
Options Avg. Avg. Options Avg.
Outstanding Contractual Exer. Exercisable Exer.
Exercise Prices at 6/30/97 Life (Yrs.) Price at 6/30/97 Price
- --------------- ----------- ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C>
$ 7.00-11.25 195,458 3.62 $ 9.41 163,458 $ 9.17
13.50-18.25 223,667 6.31 15.93 134,667 14.47
22.00-25.00 220,150 8.02 23.19 60,500 23.78
29.25 3,626 6.00 29.25 3,626 29.25
----------- ----------- ------ ----------- ------
642,901 6.08 $16.51 362,251 $13.78
=========== =========== ====== =========== ======
</TABLE>
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." Total
compensation cost recognized for the year ended June 30, 1997 for stock
options granted to non-employees was $169,000. If compensation cost for
employee options granted in 1997 and 1996 under the Company's stock
option plans had been determined based on the fair value at the grant
dates, consistent with the methods provided in SFAS 123, the Company's
net income and earnings per share would have been as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996
----------- -----------
<S> <C> <C>
Net income:
As reported $10,881,662 $8,637,870
Pro forma 8,764,829 7,836,675
Earnings per share:
As reported $ 1.12 $ .89
Pro forma .90 .81
</TABLE>
The fair value of options granted under the Company's stock option plans
during 1997 and 1996 was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used: no
dividend yield, expected volatility of between 35% and 45%, risk-free
interest rates between 5.8% and 6.9% and expected lives between 7 and 10
years.
In fiscal 1994, the Company issued a warrant, expiring in July 1998, to
purchase 50,000 shares of the Company's common stock at $13.76 as part of the
acquisition of R&D Systems Europe Ltd.
G. CUSTOMERS:
No customer accounted for more than 10% of the Company's revenues for the
years ended June 30, 1997, 1996 and 1995.
H. INCOME TAXES:
The Company follows Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes." The provisions for income taxes consist
of the following:
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Earnings before income
taxes consist of:
Domestic $14,731,035 $11,664,658 $ 8,766,494
Foreign 1,256,627 927,212 881,548
----------- ----------- -----------
$15,987,662 $12,591,870 $ 9,648,042
=========== =========== ===========
Taxes on income consist of:
Currently payable:
Federal $ 4,584,000 $ 2,922,000 $ 2,485,000
State 65,000 217,000 176,000
Foreign 1,020,000 906,000 262,000
Tax benefit from exercise
of stock options 151,000 883,000 207,000
Net deferred (714,000) (974,000) (188,000)
----------- ----------- -----------
$ 5,106,000 $ 3,954,000 $ 2,942,000
=========== =========== ===========
</TABLE>
The following is a reconciliation of the federal tax calculated at the
statutory rate of 35% to the actual income taxes provided:
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Computed expected federal
income tax expense $5,596,000 $4,407,000 $3,377,000
State income taxes, net of
federal benefit 223,000 263,000 192,000
Foreign sales corporation (318,000) (288,000) (163,000)
Research and development
credits (317,000) (70,000) (366,000)
Tax exempt interest (186,000) (150,000) (101,000)
Graduated income tax rate (113,000) (126,000) (97,000)
Other 221,000 (82,000) 100,000
---------- ---------- ----------
$5,106,000 $3,954,000 $2,942,000
========== ========== ==========
</TABLE>
Deferred income taxes are provided to record the income tax effect of
temporary differences between the tax basis and financial reporting basis of
assets and liabilities. Temporary differences comprising deferred taxes on
the consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
June 30,
1997 1996
---------- ----------
<S> <C> <C>
Inventory reserves $ 501,000 $ 427,000
Inventory costs capitalized 385,000 348,000
Foreign net operating loss carryforward 167,000 144,000
Unrealized profit on intercompany sales 193,000 169,000
Other 76,000 174,000
---------- ----------
Current asset 1,322,000 1,262,000
Excess of book over tax
intangible asset amortization 439,000 458,000
Excess of book over tax research expense 907,000 392,000
Deferred rent 320,000 181,000
Other 37,000 18,000
---------- ----------
Noncurrent asset 1,703,000 1,049,000
---------- ----------
$3,025,000 $2,311,000
========== ==========
</TABLE>
At June 30, 1997, approximately $523,000 of non-U.S. tax losses were
available for carryforward indefinitely.
The Company's tax returns are subject to audit by various governmental
entities in the normal course of business. The Company does not believe that
such audits will have a material impact on the Company's financial position
or results of operations.
I. FOREIGN OPERATIONS AND EXPORT SALES:
Net sales of the Company's foreign subsidiaries are primarily made to
unaffiliated customers in Europe. The consolidated financial statements
include amounts for the Company's foreign subsidiaries as of and for the
years ended June 30 as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $18,914,942 $16,359,028 $13,876,250
Net income 774,627 557,212 477,548
Total assets 7,162,322 6,011,726 4,911,259
Net assets 4,306,065 3,188,114 2,686,667
Capital expenditures 173,359 635,290 280,664
Depreciation expense 406,441 315,800 235,684
</TABLE>
Export sales consist of the following:
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Europe $2,542,588 $3,009,550 $3,243,569
Asia 3,184,624 2,807,082 1,884,997
Canada 1,000,654 935,327 666,516
Other 598,826 482,151 250,786
---------- ---------- ----------
$7,326,692 $7,234,110 $6,045,868
========== ========== ==========
</TABLE>
J. BENEFIT PLANS:
PROFIT SHARING PLAN: The Company has a Profit Sharing and Savings Plan
for non-union employees, which conforms to IRS provisions for 401(k)
plans. The Company may make profit sharing contributions at the
discretion of the Board of Directors. Operations have been charged for
contributions to the plan of $525,500, $485,000 and $407,500 for the
years ended June 30, 1997, 1996 and 1995, respectively.
STOCK BONUS PLAN: The Company also has a Stock Bonus Plan covering non-
union employees. The Company may make contributions to the plan in the
form of common stock, cash or other property at the discretion of the
Board of Directors. Operations have been charged for contributions to the
plan of $525,500, $485,000 and $407,500 for the years ended June 30,
1997, 1996 and 1995, respectively.
PERFORMANCE INCENTIVE PROGRAM: Under certain employment agreements with
executive officers, the Company recorded bonuses of $90,500, $106,000 and
$80,000 for the years ended June 30, 1997, 1996 and 1995, respectively.
In addition, options for 3,626, 197,000 and 45,000 shares of common stock
were granted to the executive officers during fiscal 1997, 1996 and 1995,
respectively.
K. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
The Company paid and received cash for the following items:
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Income taxes paid $5,388,789 $3,888,409 $2,933,578
Interest paid 29,357 2,242 8,641
Interest received 781,886 665,214 380,316
</TABLE>
Noncash transactions during the years ended June 30, 1997, 1996 and 1995
consisted of:
In 1997, stock options with a fair value of $471,500 were granted to
non-employees for services provided to the Company. At June 30, 1997,
deferred compensation of $302,500 related to the grants is included in other
long-term assets.
In 1996, stock options for 144,689 shares of common stock were exercised by
surrender of 59,307 shares of common stock at fair market value of
$1,451,856. In 1995, stock options for 9,091 shares of common stock were
exercised by the surrender of 2,500 shares of common stock at fair market
value of $25,000.
L. SUBSEQUENT EVENT:
Subsequent to June 30, 1997, the Company signed a letter of intent to
purchase up to 5 million shares of Convertible Preferred Stock of a start-up
company organized principally for the purpose of developing therapeutics
based on the biology of chemokines and chemokine receptors. Subject to the
completion of definitive agreements and certain performance milestones by the
start-up company, the Company will invest $5 million over two years in
exchange for ownership of approximately 40%.
<AUDIT-REPORT>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
TECHNE Corporation
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of TECHNE
Corporation and subsidiaries as of June 30, 1997 and 1996, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of TECHNE Corporation and
subsidiaries at June 30, 1997 and 1996 and the results of their operations
and cash flows for each of the three years in the period ended June 30, 1997,
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Minneapolis, Minnesota
September 3, 1997
</AUDIT-REPORT>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Other than "Executive Officers of the Company" which is set forth at the
end of Part I of this Form 10-K, the information required by Item 10 is
incorporated herein by reference to the sections entitled "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Company's proxy statement for its 1997 Annual Meeting of Shareholders
which will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after the close of the fiscal year for which
this report is filed.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the section entitled "Executive Compensation" in the Company's proxy
statement for its 1997 Annual Meeting of Shareholders which will be filed
with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days after the close of the fiscal year for which this report is
filed.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference to the
sections entitled "Principal Shareholders" and "Management Shareholdings"
in the Company's proxy statement for its 1997 Annual Meeting of Shareholders
which will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after the close of the fiscal year for which
this report is filed.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
A. (1) List of Financial Statements.
The following Consolidated Financial Statements are filed as part of
this Report:
Consolidated Statements of Earnings for the Years Ended
June 30, 1997, 1996 and 1995
Consolidated Balance Sheets as of June 30, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the Years
Ended June 30, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements for the Years
Ended June 30, 1997, 1996 and 1995
Independent Auditors' Report on Consolidated Financial Statements
(2) Financial Statement Schedules.
None.
(3) Exhibits.
See Exhibit Index immediately following signature page.
B. Reports on Form 8-K:
No report on Form 8-K was filed during the quarter ended June 30, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TECHNE CORPORATION
Date: September 25, 1997 Thomas E. Oland
-----------------------
By: Thomas E. Oland
Its: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Date Signature and Title
- ---- -------------------
September 25, 1997 Thomas E. Oland
----------------------
Thomas E. Oland
President, Treasurer and Director
(principal executive officer and
principal financial and
accounting officer)
September 25, 1997 Roger C. Lucas
-----------------------
Dr. Roger C. Lucas, Director
September 25, 1997 Howard V. O'Connell
------------------------
Howard V. O'Connell, Director
September 25, 1997 G. Arthur Herbert
------------------------
G. Arthur Herbert, Director
September 25, 1997 Randolph C. Steer
-------------------------
Dr. Randolph C. Steer, Director
September 25, 1997 Lowell E. Sears
--------------------------
Lowell E. Sears, Director
September 25, 1997 Christopher S. Henney
--------------------------
Dr. Christopher S. Henney, Director
EXHIBIT INDEX
for Form 10-K for the 1997 Fiscal Year
Exhibit
Number Description
- ------- -----------
3.1 Restated Articles of Incorporation of Company, as amended to
date--incorporated by reference to Exhibit 19.1 of the
Company's Form 10-Q for the quarter ended September 30, 1991*
3.2 Restated Bylaws, as amended to date--incorporated by reference
to Exhibit 3.2 of the Company's Form 10, dated October 27,
1988*
10.1 Employee Agreement with Respect to Inventions, Proprietary
Information, and Unfair Competition with Thomas E. Oland
--incorporated by reference to Exhibit 10.2 of the Company's
Form 10, dated October 27, 1988*
10.2** Company's Profit Sharing Plan--incorporated by reference to
Exhibit 10.6 of the Company's Form 10, dated October 27, 1988*
10.3** Company's Stock Bonus Plan--incorporated by reference to
Exhibit 10.7 of the Company's Form 10, dated October 27, 1988*
10.4** 1987 Incentive Stock Option Plan--incorporated by reference to
Exhibit 10.14 of the Company's Form 10, dated October 27, 1988*
10.5 Form of Stock Option Agreement for 1987 Incentive Stock
Option Plan--incorporated by reference to Exhibit 10.15 of the
Company's Form 10, dated October 27, 1988*
10.6** 1988 Nonqualified Stock Option Plan--incorporated by reference
to Exhibit 10.16 of the Company's Form 10, dated October 27,
1988*
10.7 Form of Stock Option Agreement for Nonqualified Stock Option
Plan--incorporated by reference to Exhibit 10.17 of the
Company's Form 10, dated October 27, 1988*
10.8 Purchase and Sale Agreement dated as of August 19, 1991 by and
among Amgen Inc., Research and Diagnostic Systems, Inc. and
Techne Corporation--incorporated by reference to Exhibit 10.29
of the Company's Form 8-K dated August 30, 1991, as amended
by Form 8 dated November 1, 1991*
10.9 International Distributor Agreement dated October 1, 1991
between Research and Diagnostic Systems, Inc. and Hycel, S.A.
--incorporated by reference to Exhibit 28.2 of the Company's
Form 8-K dated September 30, 1991, as amended by Forms 8
dated November 1, 1991 and November 25, 1991*
10.10 Lease between The Craig Lyle Limited Partnership and R & D
Systems, Inc.--incorporated by reference to Exhibit 10.29 of the
Company's Form 10-K for the year ended June 30, 1992*
10.11 Stock Purchase Agreement dated July 30, 1993 between the
Company and British Bio-technology Group plc--incorporated by
reference to Exhibit 1 of the Company's Form 8-K dated August
11, 1993*
10.12 Joint Biological Research Agreement dated July 30, 1993 between
the Company and British Bio-technology Group plc--incorporated
by reference to Exhibit 2 of the Company's Form 8-K dated
August 11, 1993*
10.13 Stock Purchase Warrant dated July 30, 1993 for 50,000 shares of
the Company's Common Stock--incorporated by reference to
Exhibit 3 of the Company's Form 8-K dated August 11, 1993*
10.14 Non-Enforcement of Patent Rights dated March 15, 1995 by New
England Medical Center Hospitals, Inc., Tufts University,
Massachusetts Institute of Technology and Wellesley College in
favor of R & D Systems, Inc.--incorporated by reference to
Exhibit 10.2 of the Company's Form 10-Q for the Quarter ended
March 31, 1995*
10.15 Non-Enforcement of Patent Rights dated March 21, 1995 by
Cistron Biotechnology, Inc. ("Cistron") in favor of R & D
Systems, Inc.--incorporated by reference to Exhibit 10.3 of the
Company's Form 10-Q for the Quarter ended March 31, 1995*
10.16 License and Supply Agreement dated March 21, 1995 between
Cistron and R & D Systems--incorporated by reference to Exhibit
10.4 of the Company's Form 10-Q for the Quarter ended March
31, 1995*
10.17 Research and Development Agreement dated April 10, 1995
between Cistron and R & D Systems, Inc.--incorporated by
reference to Exhibit 10.4 of the Company's Form 10-Q for the
Quarter ended March 31, 1995*
10.18 Agreement, dated October 27, 1995 for the first amendment to a
lease agreement between Craig Lyle Limited Partnership (Hillcrest
Development) and R&D Systems, Inc.--incorporated by reference
to Exhibit 10.1 of the Company's Form 10-Q for the quarter
ended September 30, 1995*
10.19 Agreement, dated July 3, 1996 for the second amendment to a
lease agreement between Hillcrest Development and R&D
Systems, Inc.--incorporated by reference to Exhibit 10.23 of the
Company's Form 10-K for the year ended June 30, 1996*
10.20** Employment Agreement, dated March 6, 1996, with James A.
Weatherbee--incorporated by reference to Exhibit 10.24 of the
Company's Form 10-K for the year ended June 30, 1996*
10.21** Employment Agreement, dated March 6, 1996, with Monica
Tsang--incorporated by reference to Exhibit 10.25 of the
Company's Form 10-K for the year ended June 30, 1996*
10.22** Employment Agreement, dated December 28, 1995, with
Thomas Detwiler--incorporated by reference to Exhibit 10.26 of
the Company's Form 10-K for the year ended June 30, 1996*
10.23 Agreement, dated December 19, 1996 for the third amendment to a
lease agreement between Hillcrest Development and R&D Systems,
Inc.--incorporated by reference to Exhibit 10.1 of the Company's
Form 10-Q for the quarter ended December 31, 1996*
10.24** 1997 Incentive Stock Option Plan
10.25** Form of Stock Option Agreement for 1997 Incentive Stock Option Plan
11 Calculation of Earnings Per Share
21 Subsidiaries of the Company:
State/Country of
Name Incorporation
------ ----------------
Research and Diagnostic Systems, Inc. Minnesota
Techne Export Inc. Barbados
R&D Systems Europe Ltd. Great Britain
R&D Systems GmbH Germany
23 Independent Auditors' Consent
27 Financial Data Schedule
- -------------
*Incorporated by reference; SEC File No. 0-17272
**Management contract or compensatory plan or arrangement
TECHNE CORPORATION
1997 INCENTIVE STOCK OPTION PLAN
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated
below:
(a) "Committee" shall mean a Committee of two or more directors who shall
be appointed by and serve at the pleasure of the Board. As long as the
Company's securities are registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended, then, to the extent necessary
for compliance with Rule 16b-3, or any successor provision, each of the
members of the Committee shall be a "Non-Employee Director."
(b) The "Company" shall mean Techne Corporation, a Minnesota corporation.
(c) "Fair Market Value" shall mean (i) if such stock is reported by the
Nasdaq National Market or Nasdaq SmallCap Market or is listed upon an
established stock exchange or exchanges, the reported closing price of such
stock by the Nasdaq National Market or Nasdaq SmallCap Market or on such
stock exchange or exchanges on the date the option is granted or, if no
sale of such stock shall have occurred on that date, on the next preceding
day on which there was a sale of stock; (ii) if such stock is not so
reported by the Nasdaq National Market or Nasdaq SmallCap Market or listed
upon an established stock exchange, the average of the closing "bid" and
"asked" prices quoted by the National Quotation Bureau, Inc. (or any
comparable reporting service) on the date the option is granted, or if
there are no quoted "bid" and "asked" prices on such date, on the next
preceding date for which there are such quotes; or (iii) if such stock is
not publicly traded as of the date the option is granted, the per share
value as determined by the Board, or the Committee, in its sole discretion
by applying principles of valuation with respect to all such options.
(d) The "Internal Revenue Code" is the Internal Revenue Code of 1986, as
amended from time to time.
(e) "Non-Employee Director" for purposes of this Plan shall have the same
meaning as set forth in Rule 16b-3, or any successor provision, as then in
effect, of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended.
(f) "Option Stock" shall mean Common Stock of the Company (subject to
adjustment as described in Section 11) reserved for options pursuant to
this Plan.
(g) "Parent" shall mean any corporation which owns, directly or indirectly
in an unbroken chain, fifty percent (50%) or more of the total voting power
of the Company's outstanding stock.
(h) The "Plan" means the Techne Corporation 1997 Incentive Stock Option
Plan, as amended hereafter from time to time, including the form of Option
Agreements as they may be modified by the Board from time to time.
(i) A "Subsidiary" shall mean any corporation of which fifty percent (50%)
or more of the total voting power of outstanding stock is owned, directly
or indirectly in an unbroken chain, by the Company.
SECTION 2.
PURPOSE
The purpose of the Plan is to promote the success of the Company and
its Subsidiaries by facilitating the retention of competent personnel and
by furnishing incentive to employees upon whose efforts the success of the
Company and its Subsidiaries will depend to a large degree. It is the
intention of the Company to carry out the Plan through the granting of
stock options which will qualify as "incentive stock options" under the
provisions of Section 422 of the Internal Revenue Code, or any successor
provision, pursuant to Section 9 of this Plan. Any options granted after
adoption of the Plan by the Board of Directors shall be treated as
nonqualified stock options if shareholder approval is not obtained within
twelve months after the adoption of the Plan by the Board. The
Administrator may provide for the continuation of options originally
granted as incentive stock options as nonqualified stock options, under
such circumstances, including a change in control of the Company, as the
Administrator shall determine.
SECTION 3.
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date of adoption by the Board of
Directors, subject to approval by the shareholders of the Company as
required in Section 2.
SECTION 4.
ADMINISTRATION
The Plan shall be administered by the Board of Directors of the
Company (hereinafter referred to as the "Board") or by a Committee which
may be appointed by the Board from time to time (collectively referred to
as the "Administrator"). The Administrator shall have all of the powers
vested in it under the provisions of the Plan, including but not limited to
exclusive authority (where applicable and within the limitations described
herein) to determine, in its sole discretion, whether an option shall be
granted, the individuals to whom, and the time or times at which, options
shall be granted, the number of shares subject to each option and the
option price and terms and conditions of each option. The Administrator
shall have full power and authority to administer and interpret the Plan,
to make and amend rules, regulations and guidelines for administering the
Plan, to prescribe the form and conditions of the respective stock option
agreements (which may vary from Optionee to Optionee) evidencing each
option and to make all other determinations necessary or advisable for the
administration of the Plan. The Administrator's interpretation of the
Plan, and all actions taken and determinations made by the Administrator
pursuant to the power vested in it hereunder, shall be conclusive and
binding on all parties concerned. Notwithstanding anything in the Plan to
the contrary, an Optionee shall not, in any calendar year, be granted
options which, in total, provide for the purchase of more than 200,000
shares of Option Stock.
No member of the Board or the Committee shall be liable for any action
taken or determination made in good faith in connection with the
administration of the Plan. In the event the Board appoints a Committee as
provided hereunder, any action of the Committee with respect to the
administration of the Plan shall be taken pursuant to a majority vote of
the Committee members or pursuant to the written resolution of all
Committee members.
SECTION 5.
PARTICIPANTS
The Administrator shall, from time to time, at its discretion and
without approval of the shareholders, designate those employees of the
Company or any Subsidiary to whom options shall be granted under this Plan.
The Administrator may grant additional options under this Plan to some or
all participants then holding options or may grant options solely or
partially to new participants. In designating participants, the
Administrator shall also determine the number of shares to be optioned to
each such participant. The Board may from time to time designate
individuals as being ineligible to participate in the Plan.
SECTION 6.
STOCK
The Stock to be optioned under this Plan shall consist of authorized
but unissued shares of Option Stock. Three hundred thousand (300,000)
shares of Option Stock shall be reserved and available for options under
the Plan; provided, however, that the total number of shares of Option
Stock reserved for options under this Plan shall be subject to adjustment
as provided in Section 11 of the Plan. In the event that any outstanding
option under the Plan for any reason expires or is terminated prior to the
exercise thereof, the shares of Option Stock allocable to the unexercised
portion of such option shall continue to be reserved for options under the
Plan and may be optioned hereunder.
SECTION 7.
DURATION OF PLAN
Options may be granted pursuant to the Plan from time to time during a
period of ten (10) years from the effective date as defined in Section 3.
Any option granted during such ten-year period shall remain in full force
and effect until the expiration of the option as specified in the written
stock option agreement and shall remain subject to the terms and conditions
of this Plan.
SECTION 8.
PAYMENT
Optionees may pay for shares upon exercise of options granted pursuant
to this Plan with cash, personal check, certified check or, if approved by
the Administrator in its sole discretion, Common Stock of the Company
valued at such Stock's then Fair Market Value, or such other form of
payment as may be authorized by the Administrator. The Administrator may,
in its sole discretion, limit the forms of payment available to the
Optionee and may exercise such discretion any time prior to the termination
of the option granted to the Optionee or upon any exercise of the option by
the Optionee.
With respect to payment in the form of Common Stock of the Company,
the Administrator may require advance approval or adopt such rules as it
deems necessary to assure compliance with Rule 16b-3, or any successor
provision, as then in effect, of the General Rules and Regulations under
the Securities Exchange Act of 1934, if applicable.
SECTION 9.
TERMS AND CONDITIONS OF OPTIONS
Each option granted pursuant to this Section 9 shall be evidenced by a
written stock option agreement (the "Option Agreement"). The Option
Agreement shall be in such form as may be approved from time to time by the
Administrator and may vary from Optionee to Optionee; provided, however,
that each Optionee and each Option Agreement shall comply with and be
subject to the following terms and conditions:
(a) Number of Shares and Option Price. The Option Agreement shall
state the total number of shares covered by the option. To the extent
required to qualify the Option as an incentive stock option under
Section 422 of the Internal Revenue Code, or any successor provision,
the option price per share shall not be less than one hundred percent
(100%) of the Fair Market Value of the Common Stock per share on the
date the Administrator grants the option; provided, however, that if
an Optionee owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or
of its Parent or any Subsidiary, the option price per share of an
incentive stock option granted to such Optionee shall not be less than
one hundred ten percent (110%) of the Fair Market Value of the Common
Stock per share on the date of the grant of the option. The
Administrator shall have full authority and discretion in establishing
the option price and shall be fully protected in so doing.
(b) Term and Exercisability of Option. The term during which any
option granted under the Plan may be exercised shall be established in
each case by the Administrator. To the extent required to qualify the
Option as an incentive stock option under Section 422 of the Internal
Revenue Code, or any successor provision, in no event shall any
incentive stock option be exercisable during a term of more than ten
(10) years after the date on which it is granted; provided, however,
that if an Optionee owns stock possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the
Company or of its parent or any Subsidiary, the incentive stock option
granted to such Optionee shall be exercisable during a term of not
more than five (5) years after the date on which it is granted.
The Option Agreement shall state when the option becomes exercisable
and shall also state the maximum term during which the option may be
exercised. In the event an option is exercisable immediately, the
manner of exercise of the option in the event it is not exercised in
full immediately shall be specified in the Option Agreement. The
Administrator may accelerate the exercisability of any option granted
hereunder which is not immediately exercisable as of the date of
grant.
(c) Other Provisions. The Option Agreement authorized under this
Section 9 shall contain such other provisions as the Administrator
shall deem advisable.
SECTION 10.
TRANSFER OF OPTION
No option granted under this Plan shall be transferable, in whole or
in part, by the Optionee other than by will or by the laws of descent and
distribution and, during the Optionee's lifetime, the option may be
exercised only by the Optionee. If the Optionee shall attempt any transfer
of any option granted under this Plan during the Optionee's lifetime, such
transfer shall be void and the option, to the extent not fully exercised,
shall terminate.
SECTION 11.
RECAPITALIZATION, SALE, MERGER, EXCHANGE
OR LIQUIDATION
In the event of an increase or decrease in the number of shares of
Common Stock resulting from a subdivision or consolidation of shares or the
payment of a stock dividend or any other increase or decrease in the number
of shares of Common Stock effected without receipt of consideration by the
Company, the number of shares of Option Stock reserved under Section 6
hereof and the number of shares of Option Stock covered by each outstanding
option and the price per share thereof shall be adjusted by the Board to
reflect such change. Additional shares which may be credited pursuant to
such adjustment shall be subject to the same restrictions as are applicable
to the shares with respect to which the adjustment relates.
Unless otherwise provided in the stock option agreement, in the event
of an acquisition of the Company through the sale of substantially all of
the Company's assets and the consequent discontinuance of its business or
through a merger, consolidation, exchange, reorganization,
reclassification, extraordinary dividend, divestiture or liquidation of the
Company (collectively referred to as a "change in control transaction" or
"transaction"), all outstanding options shall become immediately
exercisable, whether or not such options had become exercisable prior to
the transaction; provided, however, that if the acquiring party seeks to
have the transaction accounted for on a "pooling of interests" basis and,
in the opinion of the Company's independent certified public accountants,
accelerating the exercisability of such options would preclude a pooling of
interests under generally accepted accounting principles, the
exercisability of such options shall not accelerate. In addition to the
foregoing, in the event of such a transaction, the Board may provide for
one or more of the following:
(a) the complete termination of this Plan and cancellation of
outstanding options not exercised prior to a date specified by the
Board (which date shall give Optionees a reasonable period of time in
which to exercise the options prior to or simultaneously with the
effectiveness of such transaction);
(b) that Optionees holding outstanding options shall receive, with
respect to each share of Option Stock subject to such options, as of
the effective date of any such transaction, cash in an amount equal to
the excess of the Fair Market Value of such Option Stock on the date
immediately preceding the effective date of such transaction over the
option price per share of such options; provided that the Board may,
in lieu of such cash payment, distribute to such Optionees shares of
stock of the Company or shares of stock of any corporation succeeding
the Company by reason of such transaction, such shares having a value
equal to the cash payment herein; or
(c) the continuance of the Plan with respect to the exercise of
options which were outstanding as of the date of adoption by the Board
of such plan for such transaction and provide to Optionees holding
such options the right to exercise their respective options as to an
equivalent number of shares of stock of the corporation succeeding the
Company by reason of such transaction.
The Board may restrict the rights of or the applicability of this Section
11 to the extent necessary to comply with Section 16(b) of the Securities
Exchange Act of 1934, the Internal Revenue Code or any other applicable law
or regulation. The grant of an option pursuant to the Plan shall not limit
in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, exchange or consolidate or to dissolve, liquidate,
sell or transfer all or any part of its business or assets.
SECTION 12.
SECURITIES LAW COMPLIANCE
No shares of Common Stock shall be issued pursuant to the Plan unless
and until there has been compliance, in the opinion of Company's counsel,
with all applicable legal requirements, including without limitation, those
relating to securities laws and stock exchange listing requirements. As a
condition to the issuance of Option Stock to Optionee, the Administrator
may require Optionee (i) in the absence of an effective registration
statement under the Securities Act of 1933, to represent that the shares of
Option Stock are being acquired for investment and not resale and to make
such other representations as the Administrator shall deem necessary or
appropriate to qualify the issuance of the shares as exempt from the
Securities Act of 1933 and any other applicable securities laws, and (ii)
to represent that Optionee shall not dispose of the shares of Option Stock
in violation of the Securities Act of 1933 or any other applicable
securities laws.
As a further condition to the grant of any option or the issuance of
Option Stock to Optionee, Optionee agrees to the following:
(a) In the event the Company advises Optionee that it plans an
underwritten public offering of its Common Stock in compliance with
the Securities Act of 1933, as amended, and the underwriter(s) seek to
impose restrictions under which certain shareholders may not sell or
contract to sell or grant any option to buy or otherwise dispose of
part or all of their stock purchase rights of the underlying Common
Stock, Optionee will not, for a period not to exceed 180 days from the
prospectus, sell or contract to sell or grant an option to buy or
otherwise dispose of any option granted to Optionee pursuant to the
Plan or any of the underlying shares of Common Stock without the prior
written consent of the underwriter(s) or its representative(s).
(b) In the event of a transaction (as defined in Section 11 of the
Plan) which is treated as a "pooling of interests" under generally
accepted accounting principles, Optionee will comply with Rule 145 of
the Securities Act of 1933 and any other restrictions imposed under
other applicable legal or accounting principles if Optionee is an
"affiliate" (as defined in such applicable legal and accounting
principles) at the time of the transaction, and Optionee will execute
any documents necessary to ensure compliance with such rules.
The Company reserves the right to place a legend on any stock
certificate issued upon exercise of an option granted pursuant to the Plan
to assure compliance with this Section 12.
SECTION 13.
RIGHTS AS A SHAREHOLDER
An Optionee (or the Optionee's successor or successors) shall have no
rights as a shareholder with respect to any shares covered by an option
until the date of the issuance of a stock certificate evidencing such
shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property),
distributions or other rights for which the record date is prior to the
date such stock certificate is actually issued (except as otherwise
provided in Section 11 of the Plan).
SECTION 14.
AMENDMENT OF THE PLAN
The Board may from time to time, insofar as permitted by law, suspend
or discontinue the Plan or revise or amend it in any respect; provided,
however, that no such revision or amendment, except as is authorized in
Section 11 or Section 12, shall impair the terms and conditions of any
option which is outstanding on the date of such revision or amendment to
the material detriment of the Optionee without the consent of the Optionee.
Notwithstanding the foregoing, no such revision or amendment shall (i)
materially increase the number of shares subject to the Plan except as
provided in Section 13 hereof, (ii) change the designation of the class of
employees eligible to receive options, (iii) decrease the price at which
options may be granted, or (iv) materially increase the benefits accruing
to Optionees under the Plan without the approval of the shareholders of the
Company if such approval is required for compliance with the requirements
of any applicable law or regulation.
SECTION 15.
NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the Optionee
to exercise such option. Further, the granting of an option hereunder
shall not impose upon the Company or any Subsidiary any obligation to
retain the Optionee in its employ for any period.
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE
TECHNE CORPORATION
1997 INCENTIVE STOCK OPTION PLAN
THIS AGREEMENT, made effective as of this _____ day of
_______________, 19____, by and between Techne Corporation, a Minnesota
corporation (the "Company"), and_________________________________________
("Optionee").
W I T N E S S E T H:
WHEREAS, Optionee on the date hereof is a key employee or officer of
the Company or one of its Subsidiaries; and
WHEREAS, the Company wishes to grant an incentive stock option to
Optionee to purchase shares of the Company's Common Stock pursuant to the
Company's 1997 Stock Option Plan (the "Plan"); and
WHEREAS, the Administrator of the Plan has authorized the grant of an
incentive stock option to Optionee and has determined that, as of the
effective date of this Agreement, the fair market value of the Company's
Common Stock is $________ per share;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to Optionee on the
date set forth above (the "Date of Grant"), the right and option (the
"Option") to purchase all or portions of an aggregate of ________________
(____________)shares of Common Stock at a per share price of $__________ on
the terms and conditions set forth herein, and subject to adjustment pursuant
to Section 11 of the Plan. Except as otherwise provided in Paragraphs 2(b)
and 2(c) below, this Option is intended to be an incentive stock option
within the meaning of Section 422, or any successor provision, of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder.
2. Duration and Exercisability.
a. The term during which this Option may be exercised shall
terminate on _________________, ________ except as otherwise provided in
Section 11 of the Plan and Paragraphs 2(b) through 2(e) below. This Option
shall become exercisable according to the following schedule:
Percentage/Number
Vesting Date of Shares
------------ ------------------
In the event of a "change in control transaction" this option shall become
immediately exercisable as to all shares unless such transaction is
accounted for on a pooling of interests basis as provided in Section 11 of
the Plan. If Optionee does not purchase upon an exercise of this Option
the full number of shares which Optionee is then entitled to purchase,
Optionee may purchase upon any subsequent exercise prior to this Option's
termination such previously unpurchased shares in addition to those
Optionee is otherwise entitled to purchase.
For purposes of this Agreement, a "change of control
transaction" means an acquisition of the Company through the sale of
substantially all of the Company's assets and the consequent discontinuance
of its business or through a merger, consolidation, exchange,
reorganization, reclassification, extraordinary dividend, divestiture
(including a spin-off) or liquidation of the Company.
b. Termination of Employment (other than Change of Control,
Disability or Death). If Optionee's employment with the Company or any
Subsidiary is terminated for any reason other than because of a "change of
control transaction" as described in Paragraph 2(c) or because of
disability or death, this Option shall completely terminate on the earlier
of (i) the close of business on the three-month anniversary date of such
termination of employment, and (ii) the expiration date of this Option
stated in Paragraph 2 above. In such period following the termination of
Optionee's employment or, if applicable, such other relationship, this
Option shall be exercisable only to the extent the Option was exercisable
on the vesting date immediately preceding such termination of employment or
such other relationship, but had not previously been exercised. To the
extent this Option was not exercisable upon such termination of employment
or such other relationship, or if Optionee does not exercise the Option
within the time specified in this Paragraph 2(b), all rights of Optionee
under this Option shall be forfeited.
c. Change of Control. Subject to the provisions of Section 11
of the Plan, if (i) Optionee's employment with the Company or any
Subsidiary is terminated because of a "change of control transaction," (ii)
such transaction is treated as a "pooling of interests" under generally
accepted accounting principles, and (iii) Optionee is an "affiliate" of the
Company or Subsidiary under applicable legal and accounting principles,
this Option shall completely terminate on the later of (A) the close of
business on the three-month anniversary date of such termination of
employment or (B) the close of business on the date that is sixty (60) days
after the date on which affiliates are no longer restricted from selling,
transferring or otherwise disposing of the shares of stock received in the
change of control transaction. Notwithstanding the foregoing, if, upon
such termination of employment, Optionee continues to serve as a
consultant, advisor or nonemployee director of the Company or Subsidiary,
this Option shall terminate on the later of (X) the close of business on
the three-month anniversary date of the termination of all of Optionee's
relationships with the Company or Subsidiary, and (Y) the close of business
on the date that is sixty (60) days after the date on which affiliates are
no longer restricted from selling, transferring or otherwise disposing of
the shares of stock received in the change of control transaction, and this
Option shall not, upon Optionee's termination of employment, be treated as
an incentive stock option within the meaning of Code Section 422.
In such period following the termination of Optionee's
employment or, if applicable, such other relationship, this Option shall be
exercisable only to the extent the Option was exercisable on the vesting
date immediately preceding such termination of employment or such other
relationship, but had not previously been exercised, unless the
exercisability of this Option has been accelerated as provided in Section
11 of the Plan. To the extent this Option was not exercisable upon such
termination of employment or such other relationship, or if Optionee does
not exercise the Option within the time specified in this Paragraph 2(c),
all rights of Optionee under this Option shall be forfeited. If Optionee
exercises this Option on a date that is after the three-month anniversary
of the termination of Optionee's employment or on a date that is more than
ten years (or five years, if applicable) after the Date of Grant, this
Option shall not be treated as an incentive stock option within the meaning
of Code Section 422.
d. Disability. If Optionee ceases to be an employee of the
Company or any Subsidiary due to disability (as such term is defined in
Code Section 22(e)(3), or any successor provision), this Option shall
completely terminate on the earlier of (i) the close of business on the six-
month anniversary date of such termination of employment, and (ii) the
expiration date under this Option stated in Paragraph 2(a) above. In such
period following such termination of employment, this Option shall be
exercisable only to the extent the Option was exercisable on the vesting
date immediately preceding the date of Optionee's termination of
employment. If Optionee does not exercise the Option within the time
specified in this Paragraph 2(d), all rights of Optionee under this Option
shall be forfeited.
e. Death. In the event of Optionee's death, this Option shall
terminate on the earlier of (i) the close of business on the six-month
anniversary date of the date of Optionee's death, and (ii) the expiration
date of this Option stated in Paragraph 2(a) above. In such period
following Optionee's death, this Option shall be exercisable by the person
or persons to whom Optionee's rights under this Option shall have passed by
Optionee's will or by the laws of descent and distribution only to the
extent the Option was exercisable on the vesting date immediately preceding
the date of Optionee's death. If such person or persons do not exercise
this Option within the time specified in this Paragraph 2(e), all rights
under this Option shall be forfeited.
3. Manner of Exercise.
a. General. The Option may be exercised only by Optionee (or
other proper party in the event of death or incapacity), subject to the
conditions of the Plan and subject to such other administrative rules as
the Administrator may deem advisable, by delivering within the Option
Period written notice of exercise to the Company at its principal office.
The notice shall state the number of shares as to which the Option is being
exercised and shall be accompanied by payment in full of the Option price
for all shares designated in the notice. The exercise of the Option shall
be deemed effective upon receipt of such notice by the Company and upon
payment that complies with the terms of the Plan and this Agreement. The
Option may be exercised with respect to any number or all of the shares as
to which it can then be exercised and, if partially exercised, may be so
exercised as to the unexercised shares any number of times during the
Option period as provided herein.
b. Form of Payment. Subject to approval by the Administrator,
payment of the Option price by Optionee shall be in the form of cash,
personal check, certified check or previously acquired shares of Common
Stock of the Company, or any combination thereof. Any stock so tendered as
part of such payment shall be valued at its Fair Market Value as provided
in the Plan. For purposes of this Agreement, "previously acquired shares
of Common Stock" shall include shares of Common Stock that are already
owned by Optionee at the time of exercise.
c. Stock Transfer Records. As soon as practicable after the
effective exercise of all or any part of the Option, Optionee shall be
recorded on the stock transfer books of the Company as the owner of the
shares purchased, and the Company shall deliver to Optionee one or more
duly issued stock certificates evidencing such ownership. All requisite
original issue or transfer documentary stamp taxes shall be paid by the
Company.
4. Miscellaneous.
a. Employment; Rights as Shareholder. This Agreement shall not
confer on Optionee any right with respect to continuance of employment by
the Company or any of its Subsidiaries, nor will it interfere in any way
with the right of the Company to terminate such employment. Optionee shall
have no rights as a shareholder with respect to shares subject to this
Option until such shares have been issued to Optionee upon exercise of this
Option. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property),
distributions or other rights for which the record date is prior to the
date such shares are issued, except as provided in Section 10 of the Plan.
b. Securities Law Compliance. The exercise of all or any parts
of this Option shall only be effective at such time as counsel to the
Company shall have determined that the issuance and delivery of Common
Stock pursuant to such exercise will not violate any state or federal
securities or other laws. Optionee may be required by the Company, as a
condition of the effectiveness of any exercise of this Option, to agree in
writing that all Common Stock to be acquired pursuant to such exercise
shall be held, until such time that such Common Stock is registered and
freely tradable under applicable state and federal securities laws, for
Optionee's own account without a view to any further distribution thereof,
that the certificates for such shares shall bear an appropriate legend to
that effect and that such shares will be not transferred or disposed of
except in compliance with applicable state and federal securities laws.
c. Mergers, Recapitalizations, Stock Splits, Etc. Pursuant and
subject to Section 11 of the Plan, certain changes in the number or
character of the Common Stock of the Company (through sale, merger,
consolidation, exchange, reorganization, divestiture (including a spin-
off), liquidation, recapitalization, stock split, stock dividend or
otherwise) shall result in an adjustment, reduction or enlargement, as
appropriate, in Optionee's rights with respect to any unexercised portion
of the Option (i.e., Optionee shall have such "anti-dilution" rights under
the Option with respect to such events, but shall not have "preemptive"
rights).
d. Shares Reserved. The Company shall at all times during the
option period reserve and keep available such number of shares as will be
sufficient to satisfy the requirements of this Agreement.
e. Withholding Taxes on Disqualifying Disposition. In the
event of a disqualifying disposition of the shares acquired through the
exercise of this Option, Optionee hereby agrees to inform the Company of
such disposition. Upon notice of a disqualifying disposition, the Company
may take such action as it deems appropriate to insure that, if necessary
to comply with all applicable federal or state income tax laws or
regulations, all applicable federal and state payroll, income or other
taxes are withheld from any amounts payable by the Company to Optionee.
If the Company is unable to withhold such federal and state taxes, for
whatever reason, Optionee hereby agrees to pay to the Company an amount
equal to the amount the Company would otherwise be required to withhold
under federal or state law. Optionee may, subject to the approval and
discretion of the Administrator or such administrative rules it may deem
advisable, elect to have all or a portion of such tax withholding
obligations satisfied by delivering shares of the Company's Common Stock
having a fair market value equal to such obligations.
f. Nontransferability. During the lifetime of Optionee, the
accrued Option shall be exercisable only by Optionee or by the Optionee's
guardian or other legal representative, and shall not be assignable or
transferable by Optionee, in whole or in part, other than by will or by the
laws of descent and distribution.
g. 1997 Incentive Stock Option Plan. The Option evidenced by
this Agreement is granted pursuant to the Plan, a copy of which Plan has
been made available to Optionee and is hereby incorporated into this
Agreement. This Agreement is subject to and in all respects limited and
conditioned as provided in the Plan. The Plan governs this Option and, in
the event of any questions as to the construction of this Agreement or in
the event of a conflict between the Plan and this Agreement, the Plan shall
govern, except as the Plan otherwise provides.
h. Lockup Period Limitation. Optionee agrees that in the event
the Company advises Optionee that it plans an underwritten public offering
of its Common Stock in compliance with the Securities Act of 1933, as
amended, and that the underwriter(s) seek to impose restrictions under
which certain shareholders may not sell or contract to sell or grant any
option to buy or otherwise dispose of part or all of their stock purchase
rights of the underlying Common Stock, Optionee hereby agrees that for a
period not to exceed 180 days from the prospectus, Optionee will not sell
or contract to sell or grant an option to buy or otherwise dispose of this
option or any of the underlying shares of Common Stock without the prior
written consent of the underwriter(s) or its representative(s).
i. Accounting Compliance. Optionee agrees that, in the event a
"change of control transaction" (as defined in Paragraph 2(a) above) is
treated as a "pooling of interests" under generally accepted accounting
principles and Optionee is an "affiliate" of the Company or any Subsidiary
(as defined in applicable legal and accounting principles) at the time of
such change of control transaction, Optionee will comply with all
requirements of pooling accounting rules and Rule 145 under the Securities
Act of 1933, as amended, and the requirements of such other legal or
accounting principles as may be applicable, and will execute any documents
necessary to ensure such compliance.
j. Stock Legend. The certificates for any shares of Common
Stock purchased by Optionee (or, in the case of death, Optionee's
successors) shall bear an appropriate legend to reflect the restrictions of
Paragraphs 4(b), 4(h) and 4(i) of this Agreement.
k. Scope of Agreement. This Agreement shall bind and inure to
the benefit of the Company and its successors and assigns and Optionee and
any successor or successors of Optionee permitted by Paragraph 4(f) above.
l. Arbitration. Any dispute arising out of or relating to this
Agreement or the alleged breach of it, or the making of this Agreement,
including claims of fraud in the inducement, shall be discussed between the
disputing parties in a good faith effort to arrive at a mutual settlement
of any such controversy. If, notwithstanding, such dispute cannot be
resolved, such dispute shall be settled by binding arbitration. Judgment
upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitrator shall be a retired state or
federal judge or an attorney who has practiced securities or business
litigation for at least 10 years. If the parties cannot agree on an
arbitrator within 20 days, any party may request that the chief judge of
the District Court for Hennepin County, Minnesota, select an arbitrator.
Arbitration will be conducted pursuant to the provisions of this Agreement,
and the commercial arbitration rules of the American Arbitration
Association, unless such rules are inconsistent with the provisions of this
Agreement, but without submission of the dispute to such Association.
Limited civil discovery shall be permitted for the production of documents
and taking of depositions. Unresolved discovery disputes may be brought to
the attention of the arbitrator who may dispose of such dispute. The
arbitrator shall have the authority to award any remedy or relief that a
court of this state could order or grant; provided, however, that punitive
or exemplary damages shall not be awarded. The arbitrator may award to the
prevailing party, if any, as determined by the arbitrator, all of its costs
and fees, including attorneys' fees. Unless otherwise agreed by the
parties, the place of any arbitration proceedings shall be Hennepin County,
Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the day and year first above written.
TECHNE CORPORATION
By:__________________________
Its:_____________________
______________________________
Optionee
TECHNE CORPORATION
CALCULATION OF PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year ended June 30,
-------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Net earnings $10,881,662 $8,637,870 $6,706,042
=========== ========== ==========
Weighted average number of common shares 9,455,304 9,436,403 9,365,533
Dilutive effect of stock options
and warrants 275,962 285,022 156,423
----------- ---------- ----------
Average common and common equivalent
shares outstanding 9,731,266 9,721,425 9,551,956
=========== ========== ==========
Net earnings per share $ 1.12 $ 0.89 $ 0.70
=========== ========== ==========
</TABLE>
CALCULATION OF FULLY-DILUTED EARNINGS PER SHARE (1)
<TABLE>
<CAPTION>
Year ended June 30,
-------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Net earnings $10,881,662 $8,637,870 $6,706,042
=========== ========== ==========
Weighted average number of common shares 9,455,304 9,436,403 9,365,533
Dilutive effect of stock options
and warrants 294,834 317,812 166,637
----------- ---------- ----------
Average common and common equivalent
shares outstanding 9,750,138 9,754,215 9,532,170
=========== ========== ==========
Net earnings per share $ 1.12 $ 0.89 $ 0.70
=========== ========== ==========
</TABLE>
(1) Not separately reported since effect of dilution is less than 3%.
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement No. 33-42992, 33-49160, 33-86728, 33-86732 and
333-14211 of Techne Corporation on Form S-8, of our report
dated September 3, 1997, included in this Annual Report on
Form 10-K of Techne Corporation for the year ended June
30, 1997.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
September 22, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,598,367
<SECURITIES> 16,153,890
<RECEIVABLES> 9,166,447
<ALLOWANCES> 52,000
<INVENTORY> 4,087,161
<CURRENT-ASSETS> 39,797,358
<PP&E> 21,248,630
<DEPRECIATION> 9,995,889
<TOTAL-ASSETS> 53,921,710
<CURRENT-LIABILITIES> 4,898,366
<BONDS> 0
0
0
<COMMON> 94,377
<OTHER-SE> 47,986,667
<TOTAL-LIABILITY-AND-EQUITY> 53,921,710
<SALES> 60,923,750
<TOTAL-REVENUES> 60,923,750
<CGS> 19,094,827
<TOTAL-COSTS> 19,094,827
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,357
<INCOME-PRETAX> 15,987,662
<INCOME-TAX> 5,106,000
<INCOME-CONTINUING> 10,881,662
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,881,662
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12
</TABLE>
